No wholesale ditching of salary sacrifice schemes by companies

Salary sacrifice schemes remain one of the most popular employee benefits in the UK, despite tax changes to the product.

According to research of 1,000 drivers by Sodexo Benefits and Rewards Services, one in five (20%) said they value access to the benefit after pensions (51%), childcare (41%) and discounted shopping (34%).

James Malia, Sodexo director of employee benefits, said: “These findings are particularly pertinent given the Government’s new policies on salary sacrifice.

“Whereas previously staff could give up a portion of their pre-tax salary to pay for car financing benefits, the new policy will mean that only a small number of ultra-low emission vehicles (ULEVs) will be eligible.”

Under the old rules drivers obtaining a car via a salary sacrifice scheme were taxed on the benefit-in-kind (BIK) of their chosen vehicle.

The new rules, outlined in the recent Finance Bill, will see drivers taxed on the higher of either the BIK or the sacrificed salary – unless they choose a ULEV emitting 75g/km of CO2 or less, as these are exempt. HMRC expects to get an extra £260 million a year from the changes (fleetnews.co.uk, April 18).

Employees who were enrolled in salary sacrifice contracts before April 6 this year will also be protected from the new rules until April 2021.

More than a third (34%) of respondents to a Fleet News poll at the start of this year said they would be ‘less likely’ to introduce a salary sacrifice scheme, while 17% said they were ‘less likely to retain’ one. More than a quarter (29%) of respondents to the poll said they were not taking any action yet. 

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 (fleetnews.co.uk, March 23).

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.”

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.

Malia said: “We shouldn’t expect to see the fleet industry grind to a halt, and any attempt to exaggerate the repercussions of this new legislation should be avoided.”

He admits the changes to salary sacrifice are likely to have a negative impact overall, but he’s confident the changes don’t signal the end. He said: “The Government has not eliminated the financial benefits of car salary sacrifice schemes altogether. Ultra-low emission vehicles are still tax efficient, meaning greener motoring is still very much on the agenda.”

Malia said that while the choice of manufacturer, style and price does limit a fleet’s choice for ultra-low emission vehicles, this is set to change.

He said: “Most, if not all, major manufacturers have hybrid or pure electric cars in the pipeline, and with the Government’s recent comments around diesel vehicles, we could see these launches accelerated.”

Malia said fleet managers will need to adapt their fleet to align with the expected increase in demand for ULEVs. 

This includes the increased costs involved with offering suitable charging facilities at work for plug-in vehicles.

He said: “A company would also need to make sure those going to work in an electric vehicle or plug-in hybrid can get home again, so charging stations at work will need to be accounted for to ensure the scheme doesn’t run out of steam (or charge) before it gets going.”

Malia said tax changes can easily fly under the radar for employees and it was on the shoulders of fleet managers and leasing companies to work together to help inform them in simple terms.

“From our side, we haven’t seen an immediate withdrawal from employers, as informed employers will simply adapt their offering and communicate any changes accordingly,” he said.

“As a result, as long as there remains a healthy demand for this type of benefit, employers will continue to offer it.”