Fleets warned on affinity schemes for employees

Fleets choosing affinity schemes to give employees access to cars should make sure they are not seen by HM Revenue and Customs (HMRC) as company cars that will attract benefit-in-kind (BIK) taxation.

There has been a spike in interest from employers looking to set up affinity car schemes due to the growing uncertainty around salary sacrifice, according to providers like Alphabet.

The Chancellor of the Exchequer George Osborne again raised his concerns around the continued growth in salary sacrifice in the budget, but is yet to make a decision on whether car schemes will be allowed to continue. This has persuaded some fleets to explore alternatives.

An affinity scheme lets employers offer a vehicle through finance to employees at a discounted rate negotiated by the leasing company.

The key benefit for employees is that they don’t have to put down a deposit, will get a competitive APR rate negotiated by the leasing company and are protected from the residual risk through a guaranteed future value on the vehicle at the end of the finance arrangement.

However, Alastair Kendrick, director at MHA MacIntyre Hudson, told Fleet News: “If the scheme is promoted or supported by the employer and unless ownership of the car transfers at the outset to the employee, the HMRC is likely to view it as a company car scheme.

“We have seen lessors suggesting that what they are offering is not by reason of employment and therefore it is not necessary to transfer title – so a personal contract hire or personal contract purchase works. This, from experience, is not the view of HMRC and employers do not fully understand the risks.”

Fleet News approached HMRC on whether it has concerns around how affinity schemes are being administered, but it declined to comment.

Kendrick argued that affinity scheme funding can only be through a credit sale agreement, rather than PCP or PCH.

He gave an example of a company that got it wrong in a case 10 years ago and was hit with a £1.75 million tax bill.

Under a credit sale agreement, the employee buys the vehicle at the cash price. Repayment is made by instalments until the employee has paid the whole amount.

The employee becomes the legal owner of the vehicle as soon as the contract is made.

It’s an approach Alphabet uses with its AlphaDrive affinity product. Jon Burdekin, Alphabet head of product management, says affinity schemes are growing in popularity.

“The correct way to go about an affinity scheme is through a credit sale agreement,” he said. “It means the provider is selling to the individual, a little bit like a mortgage for a car.

“It’s not a lease and, although it looks like a company car, it isn’t. If the employee owns the car, it cannot be deemed to be a company car and so it does not attract BIK.”

Burdekin is also urging fleets to seek advice from a tax expert and get HMRC approval for any scheme introduced.

Nick Davies, BHP employer consulting director and tax consultant for TCH Leasing, says it is important there is a clear differentiation between an affinity scheme and a company car scheme.

He has also seen an increase in interest around affinity schemes due to the continuing uncertainty around salary sacrifice.

“The business providing an affinity scheme should act as nothing more than an introducer for the employee to the leasing company,” he said.

“The company should not be acting as a guarantor for the arrangement.”

Kendrick says the HMRC will lay blame with the employer, not the leasing company, if it deems there to have been a mistake with how the scheme has been set up.

“If HMRC finds the scheme is not correct, it will want to recover unpaid tax and national insurance payments, going back up to six years,” he said.

“The HMRC will be looking for £3,000 maximum per P11D per year for each vehicle.”