Company cars have been ‘caught in the crossfire’ of a Government crackdown on salary sacrifice, according to a major supplier of the workplace benefit.

HM Revenue and Customs (HMRC) says that employers who want to offer the benefit will still be able to do so – but added that the tax advantages for some “will be reduced”.

David Hosking, chief executive officer at salary sacrifice provider Tusker, told Fleet News: “Salary sacrifice cars have been caught in the crossfire as the Government seeks to eliminate the practice of employers offering benefits that either do not attract any tax on a benefit in kind (BIK) or those that solely deliver tax savings. Company cars clearly do not fall into this category.”

HMRC says that growth in salary sacrifice represents an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages, and those that don’t. “We want employers to continue to offer benefits to their employees, but need to balance this with the interests of all taxpayers,” it said.

The Government is proposing to change tax legislation so that where a BIK is provided through salary sacrifice it will be chargeable to income tax and Class 1A National Insurance Contributions (NICs), if the taxable value is higher than the salary sacrificed.

However, it has ruled out any changes to pension saving, employer-supported childcare and the cycle to work scheme. Other schemes, including the provision of company cars, are subject to the consultation, which was launched on August 10.

Alastair Kendrick, tax director at MacIntyre Hudson, said: “Salary sacrifice schemes are very costly for the Government at a time when they need to raise funds.”

However, research carried out by Pricewaterhouse Coopers found that many salary sacrifice cars are tax positive, due to the additional revenue from VAT on additional services, lease agreements and disposal costs.

Further analysis from Tusker of its own salary sacrifice fleet found that the positive tax contribution for cars delivered in 2016 is projected to be at least £1m for the Exchequer. And, with the increases in benefit-in-kind (BIK) tax already announced for the future, this revenue could quadruple from new orders during next year with an estimate of £4.7m forecast for 2017, it said.

Hosking said: “We went through every single vehicle ordered on our scheme since the beginning of this year and balanced the tax savings made by the employee and employer in each case against the tax contribution from the lease.  It is important to note that the vast majority of these orders are incremental new car sales for employees who would not normally be able to afford to drive a new car.”

The uptake of low CO2 vehicles, hybrids and electric vehicles is also much higher under salary sacrifice than for new car sales as a whole, with average emissions of 101g/km compared with 121g/km for all new car registrations.

The BVRLA has pledged to make a strong case for salary sacrifice car schemes to receive special consideration as part of HMRC’s consultation on their future tax treatment.

“This is a consultation and it is important to remember that the government has pledged ‘to only consult on issues that are genuinely undecided’,” said BVRLA chief executive Gerry Keaney, who went on to provide more detail of the wider benefits provided by salary sacrifice car schemes.

“These company car schemes offer a valuable way of rewarding and retaining staff, particularly for many public sector organisations who have had to struggle with long-term pay freezes.

“Our research shows that 80% of salary sacrifice drivers are in the basic income tax bracket and these schemes provide them with a unique opportunity to drive a greener and safer car than they would otherwise.

“The new car sales generated by salary sacrifice schemes also give a valuable boost to the UK economy,” added Keaney.

The fleet industry has until October 19 to respond to consultation, with new rules expected to be adopted from April 2017.

Following the change, employers would be required to report any BIKs provided through salary sacrifice to HMRC in the same way as other taxable BIKs that they report. This could be through the P11D process or by voluntary payrolling. The BIKs would also need to be reported on form P11D for Class 1A NICs.

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