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Why the Government should leave Car Salary Sacrifice well alone

Written by | Posted on 04.11.2016
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two men working on salary sacrifice consultation

We all know that the Government is looking at Salary Sacrifice. They announced as much in George Osborne’s last Budget 1 as Chancellor; then they launched a consultation on the matter    2 in August; and now, apparently, the results of that consultation will be released in time for Philip Hammond’s first Autumn Statement later this month. 23 November is the date to highlight in your diary.

Exemptions

Unlike some other benefits from Salary Sacrifice – e.g. childcare vouchers and cycling schemes – cars have not been exempted from this process. We think they should have been originally, and that they still should be once the Government arrives at its new policy. It makes no sense to clamp down on employees who get their vehicles this way.

Why? For starters, there are the financial dimensions. Whilst it’s true that Salary Sacrifice schemes reduce the Income Tax liabilities of employees and the Class 1A National Insurance Contributions of employers, cars gained in this manner aren’t tax-exempt. They are treated as company cars, and are taxed accordingly. Her Majesty’s Revenue and Customs still gains from the Benefit-in-Kind payments, among others, that have to be made.

Company Car Tax

Besides, HMRC is gaining more from these payments by the year. Until we hear the outcome of a separate consultation on Company Car Tax, all we know is that practically all vehicles will face higher BIK rates over the next few years. For instance, a car emitting between 76 and 94 gCO2/km pays a 15 per cent rate during the current financial year. This will rise to 22 per cent in 2019-20. 3

Environmental impact

But it’s not just to do with money. According to a recent report 4 by the British Vehicle Rental and Leasing Association, Salary Sacrifice cars are some of the newest – and therefore some of the greenest – on the roads. The average one is just 1.3 years old and emits 103 gCO2/km. As our chart shows 5, this compares very favourably to other forms of motor:

LeasePlan graph of salary sacrifice

Salary Sacrifice Graph LeasePlan

Final thoughts

The companies and public sector organisations and their workers who benefit from Car Salary Sacrifice schemes are already transferring their fair share – or more – to the nation’s coffers. And, what’s more, they’re helping out the environment as they do so. So why should the Government mess with a good thing? We are clear on the answer: they shouldn’t.

 

 

 

 


Sources:

  1. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508193/HMT_Budget_2016_Web_Accessible.pdf
  2. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/549682/Salary_sacrifice_for_the_provision_of_benefits-in-kind_HMRC_consultation.pdf
  3. https://insights.leaseplan.co.uk/budget-2016/
  4. http://www.bvrla.co.uk/sites/default/files/documents/research/bvrla_grey_fleet_final_0.pdf
  5. SMMT figures http://www.smmt.co.uk/vehicle-data/

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