Expert Blog

Government launches salary sacrifice consultation

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As we reported earlier this year, George Osborne’s final Budget as Chancellor included a warning about salary sacrifice schemes. The Government, it said, was considering limiting what sorts of employee benefits come exempt from Income Tax and National Insurance when provided though salary sacrifice schemes.

Despite a change of personnel at the Treasury, the Government is pushing ahead with those plans. HMRC has launched a salary sacrifice consultation on its proposals that will run until 19th October. The Government’s final decisions are due to be announced by the new Chancellor, Philip Hammond, at his Autumn Statement in November or December and brought in by legislation next year.

Will salary sacrifice car schemes be affected?

What might this mean for employers who offer cars through salary sacrifice schemes, and the employees who benefit from them? HMRC’s proposal is to effectively charge Income Tax and employers’ NIC on the amount of salary sacrificed or the cash equivalent of the benefit – whichever is greater. In most cases, that would mean more tax to pay for both employee and employer. Cars are not included in the list of benefits that the Government has explicitly exempted from this change: pension saving, childcare and the ‘cycle to work’ scheme.

The consultation paper does not address the specific case of cars – which are already subject to the same Benefit in Kind (BIK) tax as company cars, unlike other salary sacrifice schemes such as childcare and mobile phone contracts. The most polluting cars currently attract the highest rates of BIK, while ultra-low emission vehicles are currently exempt from this tax. The proposed changes would therefore hit the greenest cars hardest.

We at Hitachi Capital Vehicle Solutions are working closely with the BVRLA to emphasise the economic, social and environmental benefits of car salary sacrifice schemes. They help companies to attract and retain the best talent, while also enabling people to buy newer, cleaner and safer cars at better prices. Together with the BVRLA and our customers, we’ll be making the case to the Government that cars should therefore be added to the list of benefits exempt from these proposals.

The full consultation document, including details of how to respond, is available on the HMRC website here.

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