Autumn Statement reduces tax benefits of salary sacrifice schemes
But ultra low emission cars are exempt from new proposals
One of the most far-reaching changes of the Autumn Statement – Chancellor Philip Hammond’s first and last – was to salary sacrifice schemes, which have grown dramatically throughout both public and private sectors in recent years.
The Chancellor announced that his first Autumn Statement would be his last, but that he wasn’t resigning. Rather he was switching to an Autumn Budget Statement from next year, with much more low-key announcement in the spring in response to the Office of Budget Responsibility.
What are the changes to salary sacrifice schemes?
The Chancellor said that such schemes had led to some employees paying less tax than their colleagues, which was not fair.
As a result, those opting to take benefits through salary sacrifice would, from April, pay the same tax as if they had been provided through their cash income, a move set to raise an extra £85m in taxes during the 2017/18 tax year.
This would then increase to an extra £235m per year in the 2018/19, 2019/20 and 2020/21 financial years in terms of increased tax revenues.
There were exceptions to this new rule, however, and ultra low emission vehicles (ULEVs), pension savings, childcare vouchers and cycle to work schemes were exempt from the changes.
Arrangements in place before April 2017 will be protected until April 2018, and those arrangements which are for for cars, accommodation and school fees will be protected for up to four years.
“This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income,” said the Treasury.
What are ULEVs?
The Government defines (ULEVs) as cars or vans with tailpipe CO2 emissions of 75 g/km or less.
At last year’s Autumn Statement, then Chancellor George Osborne announced that the Government was putting aside £600m to support the market and manufacturing of ultra-low emission vehicles with a target of 25% of European EVs being built in the UK.
This was part of the Government’s commitment to continue towards 100% zero emission vehicle sales by 2040. The investment was said to save 65 million tonnes of carbon, as well as helping with air quality issues.
The new rules on salary sacrifice are likely to give a further boost to such low-emitting vehicles, which is very much in the Government’s interests, although choice at the moment is still limited.
What will it mean for salary sacrifice car schemes?
Existing contracts are protected for up to four years and there are growing numbers of vehicles with CO2 emissions of 75g/km, which are only going to increase over time.
So it still means that those with existing arrangements can enjoy them for a further four years before switching perhaps to an even lower emission vehicle.
The announcement may now mean a rush of new car orders through salary sacrifice car schemes between now and next April as drivers seek to take advantage of existing rules.
From the Government’s perspective, the move makes absolute sense as it encourages employees to switch to lower emitting cars if they wish to continue in salary sacrifice arrangements.
The number of cars that will be available under the new rules from next April, while currently limited, are definitely on the increase. For example, Maxxia currently has 82 separate models on its Lifestyle Lease car scheme.
However, many more models are currently at the more expensive end of the price range, which may price some employees out of the market.
This is unfortunate because one of salary sacrifice’s major advantages was how it enabled new cars to be accessible to a broad range of company employees that did not qualify for company cars.
But with more low emitting cars in the pipeline from many of the mainstream motor manufacturers, it should only be a matter of time before the supply situation improves and there are ULEVs available to meet all budgets.
Why have salary sacrifice car schemes been so popular?
Salary sacrifice cars schemes have been one of the major success stories of the last two to three years, and many organisations have taken advantage of them on behalf of employees who would not normally have access to a new company car.
They offer a number of benefits:
Benefits for the company
- Staff motivation
- Enhance corporate responsibility
- Helps you to successfully meet Duty of Care obligations
Benefits for employees
- A new fully maintained, insured and affordable vehicle
- Reduced tax and reduced NI contributions
- Affordable fixed monthly costs
- An environmentally friendly vehicle
Amongst other benefits is the all-embracing nature of the package provided, as this typically includes all servicing, maintenance and repair, fully comprehensive insurance, a no-quibble tyre policy, all automotive glass, annual road fund licence and breakdown and recovery assistance.
This adds up to a very comprehensive and cost-effective car benefits package for employees that other funding methods, such as Private Contract Purchase, find hard, if not impossible, to match.
With leading industry experts in its team, Maxxia can offer advice on incorporating a successful car salary sacrifice scheme into your company’s benefits package. If you need more information or support with any details regarding salary sacrifice, please get in touch.