In the announcement of the 2017 Finance Bill during late March, changes to salary sacrifice, cash allowance scheme and benefit-in-kind taxation rules were clarified.

The new legislation - designed to limit the perceived Income Tax and National Insurance advantages of some salary exchange arrangements - came into effect today on April 6th. Under previous rules, cars obtained via salary sacrifice schemes were taxed on the benefit-in-kind value of the vehicle.

In future, motorists will be taxed on the highest figure of either the BIK or the sacrificed salary.

The changes will also apply to flexible benefit packages with a cash option and BIK with a cash allowance option. Motorists can opt to drive ultra-low emission vehicles (ULEVs) cars that emit less than 75g of CO2 per kilometre, such as hybrid or plug-in electric models which are exempted from the changes until 2021. However, most salary sacrifice arrangements in place prior to April 6th will only be exempted from the changes until April of 2018.

In his Autumn Statement, Chancellor Phillip Hammond stated the legislation's aim to address fairness, while also broadening the UK tax base. 'The majority of employees pay tax on a cash salary,î he said, 'but some are able to sacrifice salary and pay much lower tax on benefits in kind. This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else' The expected revenue increase for HMRC is currently estimated at £260m per year.

Head of consultancy services at LeasePlan UK, Matthew Walters, predicted a minimal financial impact on employees. 'The fact of the matter is that, while the vast majority of new salary sacrifice car drivers will see an increase in costs, this is marginal and in most cases this is a matter of a few pounds a month' he said. 'Salary sacrifice for car schemes, where available, still represent a cost-effective way of driving a brand new, insured, fully maintained vehicle.'

However, Colin Tourick, professor of automotive management at the University of Buckingham believes some leasing companies will struggle to adequately inform customers of the changes.

'Leasing companies haven't been given enough time to modify their quoting systems to show drivers the amount of tax they'll be paying on their new cars, which will now be based on their chosen car BIK tax or their cash allowance' he said. 'Most leasing companies don't even hold details of employees' cash allowances.'

The Finance Bill also introduced 15 new tax bands. Out of these, 11 are reserved for ULEVs emitting below 75g/km of CO2. Starting in 2010, percentages for zero emission cars are to drop from 16% to 2%, while cars with emissions between 1-50gkm will vary (depending on the amount of zero-emission miles the vehicle can travel) between 2% and 14%. At the same time, the appropriate percentages for cars with over 90g/km of emissions will increase by 1%, up to a maximum of 37%.