Parliament is in the process of debating proposed changes to car tax and salary sacrifice rules as part of the 2017 Finance Bill. The changes are to be confirmed at 2017's spring Budget announcement.
The proposals currently recommend significant limits to the tax benefits afforded by salary sacrifice car schemes. Employees using a salary sacrifice arrangement, or using a company car in place of a cash alternative, will now pay tax connected to their vehicle or cash alternative – whichever has the highest taxable value. These changes will apply to all related contracts entered into on or following April 6th 2017. Those on contracts before April 6th will be exempt from the changes until April of 2021.
Additionally, under the new rules employers will no longer benefit from associated National Insurance savings on many salary sacrifice cars. This has prompted concerns that companies will decrease the selection offered through schemes to employees. There are fears the result may be the removal of such schemes altogether. However, the changes come with an important caveat regarding low emission vehicles: the limitations will apply only to cars which emit more than 75g/km of CO2.
While many worry about increased costs and reduced choice, fleet representative body AFCO has warned employers against reflexively rejecting salary sacrifice car schemes. Caroline Sanders, Deputy Chairman, said: 'Businesses must consider the impact of the change, taking into consideration employer position on CO2 limits and available cars. 'There are many cars that are largely unaffected, others will perhaps become more attractive, such as ultra-low emission vehicles, and others will become less attractive. But that doesn't mean the destruction of choice lists; it just requires careful consideration of the impact on available vehicles.
Across the industry, reactions have been mixed. While many employers await clarity from Government and internal review processes before announcing changes to their staff, others have already highlighted the proposals and their probable implications. Rolls-Royce has announced its intention to close its salary sacrifice car scheme. On the other hand, it has been reported that many private and public companies, from the NHS, to Morgan Sindall and the Unipart Group, are favouring the 'wait and see' approach.
While the new rules may make salary sacrifice car schemes more expensive for employers, companies must consult their tax advisers and HR representatives to analyse the unique impact on their business and review the options available. It is advisable that employers begin to analyse the immediate impact on both existing vehicle orders and their drivers, offering renewed choices where necessary. Dan Rees, associate director of Deloitte Car and Mobility Consulting, has indicated that ultra-low emission vehicles will become 'more and more attractive' as we approach the 2020/21 tax year, when new benefit-in-kind tax incentives for the cleanest cars _ from 16% down to 2% _ come into action. With ultra-low emission cars exempted from the proposed changes, it is likely that salary sacrifice car schemes will remain an attractive option for a large number of employers.