Complying with new tax rules for car salary sacrifice schemes and car or cash allowance programmes will prove problematic for employers, according to Dan Rees, associate director, Deloitte Car and Mobility Consulting.
With the final legislation published less than three weeks prior to launch of the new rules, Rees told delegates at an ICFM masterclass: “There is likely to be widespread non-compliance, especially in the first year.”
With the burden of responsibility for correctly reporting benefits for tax purposes falling to employers, and ultimately individual taxpayers, he urged employers to get processes in place to track employees with the relevant parameters to facilitate correct benefit reporting. Indeed those employers who currently payroll car benefit, as opposed to reporting via P11D, have an immediate requirement to get their processes in place for new joiners.
Furthermore, with the changes affecting now, what are known as Optional Remuneration Arrangements (OpRA), being introduced so rapidly, impacted employees were warned that they could face a delayed tax hit through an increased tax code in 2018/19. That’s because there is no official mechanism to report a higher salary sacrifice/cash allowance in 2017/18 until P11D submission in July 2018.
Rees suggested that employers advise their employees to contact HM Revenue and Customs (HMRC) immediately if they believed they were impacted by the rule changes, so that they could pay the right amount of tax during 2017/18.
However, expert speakers at the ICFM Masterclass, Alison Argall, business development director sales at Tusker, and Claire Evans, head of fleet consultancy at Zenith, agreed that “all the key benefits remain in place”.
Zenith suggested that only one in three of cars ordered or delivered to customers in the past 12 months would have been impacted by the new rules, which was due to increases in company car benefit-in-kind tax rates.
But, Evans said: “Salary sacrifice has not been sold on the taxable benefits for a long time because of the way that benefit-in-kind tax rates have increased, and continue to increase, each year.
“Employees look at the net cost of a new car through a salary sacrifice scheme versus the cost of obtaining the same car through a retail proposition. The figures show that benefit remains.”
Evans said: “The changes do have an impact, particularly at the bottom end, but employees still have a large choice of cars that are unaffected. Our research shows that the impact of the rule changes are perhaps not as great as feared.”
Analysis also suggested that a 20% taxpayer choosing a BMW 116d (89g/km) via a salary scheme would see a £1 net monthly cost increase post April 6, but a typical saving of £132 a month when compared with acquiring the identical car via a retail proposition. Similarly significant savings versus the retail cost were highlighted for other models including the Nissan Juke, a popular salary sacrifice model, and for 40% taxpayers on the Audi A3 and Mitsubishi Outlander.
Industry figures suggest that the number of cars on the road funded via salary sacrifice schemes is around 70,000 and Argall believes that figure will rise as both employers and employees get to grips with the new rules.
She said that 88% of Tusker’s salary sacrifice cars are supplied to basic rate taxpayers.
“These people are choosing salary sacrifice arrangements to make their money go further,” Argall continued. “While the savings available have reduced due to increases in company car benefit-in-kind tax, there are still financial savings to be made and the many other reasons for funding a new car through a salary sacrifice arrangement remain in place.”
However, she added: “A re-education process is required, but interest in salary sacrifice schemes remains strong. Our order book has never been better and many organisations have recognised that employees are comfortable with the new rules. Employer communication with employees is crucial, but the only way staff can truly decide what is best for them is when they study the numbers.”
The ICFM view: a balanced approach to vehicle funding is critical
Best practice dictates that employers take a balanced approach to vehicle funding and provision and salary sacrifice should be one of the options on the table along with outright purchase, contract hire, finance leasing, flexi-lease and a myriad of other options, which may also include cash allowances.
The inaugural ICFM Masterclass heralded the launch of a new initiative from the organisation dedicated to advancing the profession of car and light commercial fleet management.
ICFM director Peter Eldridge said: “There is a clear dichotomy between protecting the environment and driving low emission cars above the 75g/km threshold. However, as more sub-75g/km cars become available that conflict will reduce.
“If organisations have not already undertaken a detailed analysis of fleet funding and the option to include, exclude or abandon a car salary sacrifice then they should do so immediately.”
With regards to the cash or car option, he said: “It used to be so simple, but is now much more complex. Cash alternative schemes are very diverse in their structure so delivering a ‘one size fits all’ approach for all businesses is impossible.”
He concluded: “Every employer must look at the merits of car salary sacrifice and offering a car or cash option within the context of their own business and the marketplace in which they operate. It is clear that careful consideration is required, but make the right choices and both businesses and employees can benefit.”
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