Company car coalition calls on government to stop planned salary sacrifice tax raid

If you’re one of the 650,000 people who benefit from a salary sacrifice car scheme, the amount you are taxed could be changing soon.

That’s unless the British Vehicle Rental and Leasing Association (BVRLA) and other leading stakeholders in the fleet industry can persuade HM Revenue & Customs (HMRC) that the current system is already progressive and fair, in consultations that conclude this week.

The Ford Fiesta is the most popular salary sacrifice car in the UK.

Here’s the ten most popular salary sacrifice vehicles of 2016

HMRC has proposed that income tax and National Insurance contributions are made taxable under Benefit-in-Kind (BIK) – which includes employee benefit schemes such as salary sacrifice cars.

No more tax breaks

So, while employers can still offer benefits, there would no longer be a tax advantage for them or the employee. This will affect drivers of low emission cars the most, as the difference between their taxable benefit-in-kind and their car allowance currently allows for big tax breaks.

The government is becoming concerned about the rising amount of tax-free Ultra Low Emission Vehicles (ULEVs) now hitting the road, with the Treasury citing that it will miss out on income if benefit-in-kind goes unchanged.

ULEVs such as the BMW i3 and Mitsubishi Outlander PHEV are likely to be hit hardest by the changes.

Read more about the consultations that commenced in August

Concerned about this potential rising cost, the BVRLA argues that salary sacrifice cars should be exempt from any changes, given the progressive emission-based tax system already in place for them.

A study by Oxford Economics for the BVRLA estimates that up to 217,000 new car registrations each year are thanks to salary sacrifice schemes, 37% of which are manufactured in the UK. This supports over 37,000 jobs.

The BVRLA thinks that introducing changes will cause confusion and inequality to a system that, up until now, has proven to be very successful in increasing the uptake of low emission vehicles. Fleets are increasingly dominated by Ultra-Low Emission Vehicles thanks to the low tax incentives they offer – something that will be put under threat from any changes.

Consultations end this week, and any changes to the system will be announced in the government's autumn statement.

BVRLA chief executive Gerry Keaney commented: “Our analysis suggests that HMRC’s proposals could have a negligible impact on tax revenues as some drivers give up their company cars and stop paying benefit-in-kind tax entirely.

“At the same time, the government risks stifling the uptake of ultra-low emission cars and piling more misery on cash-strapped public sector employers.”

The consultations have been taking place since August, and end on 19 October. Based on responses, including the BVRLA’s, the government will announce any changes that will be made in the Autumn Statement on 23 November, with policy changes implemented from next year.

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