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Tax treatment of salary sacrifice and ULEVs come under focus in government consultation

Changes could be afoot for government tax policies on salary sacrifice schemes for fleets as well as company car tax treatment of ultra-low emission vehicles (ULEVs) and lease accounting under new consultations.

Car and money

The Government has issued consultations on three key areas of tax policy affecting the fleet sector – salary sacrifice schemes, lease accounting and company car tax treatment of ultra-low emission vehicles (ULEVs)

Launched by HM Treasury, the consultations include a look at how the company car tax system can be adapted to take into account the growing number and variation of ultra-low emission vehicles, while encouraging their uptake.

In addition, the Government is concerned about the rising costs of salary sacrifice schemes and is considering limiting the Income Tax and National Insurance contribution advantages available through these schemes.

It added: “This growth represents an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages, and those that don’t.”

The announcement follows the Autumn Statement 2015 when the Government said it would undertake evidence gathering to better understand the main drivers influencing the use of salary sacrifice.

Finally, HMRC is seeking views on how new lease accounting rules will impact the tax treatment of leased assets, and how tax legislation will need to adapt.

In response to the consultations, the BVRLA said it welcomed the clarity that they will provide on the Government’s policy positions, and that it will work with its members to ensure that the fleet industry’s views are properly represented to HM Revenue & Customs and HM Treasury.

Commenting on the consultation on company car taxation for ULEVs, BVRLA chief executive Gerry Keaney said: “For some time we have been calling on the government to increase the number of ULEV tax bands and narrow the CO2 gaps, so that greater incentives can be provided for those choosing the cleanest vehicles.

“The Government is right to explore whether zero-emission range could be used alongside CO2 emissions to produce a more effective set of company car tax bands, but it needs to ensure that any new system does not become too complicated.”

Keaney also commented on the consultation on Benefit-in-Kind tax treatment of salary sacrifice schemes, saying: “These schemes offer a valuable way of rewarding and retaining staff, particularly for many public sector organisations who have had to struggle with long-term pay freezes.

“The vast majority of staff receiving this valuable perk are in the basic income tax bracket and salary sacrifice schemes provide them with a unique opportunity to drive a newer, cleaner and safer car than they would otherwise.

“The new car sales generated by salary sacrifice schemes give a valuable boost to the UK economy and provide a more sustainable alternative to the older, more polluting grey fleet vehicles that staff might otherwise use for business travel.”

Finally, on the subject of tax changes for new lease accounting rules, Keaney added: “We will be working closely with HMRC to ensure that these long awaited new lease accounting rules result in a simpler and fairer tax treatment of leased assets, particularly for low emission vehicles that should be entitled to enhanced first-year capital allowances.”

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Natalie Middleton

Natalie has worked as a fleet journalist for nearly 20 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day.