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Autumn Statement - Salary Sacrifice changes and possible implications
06 December 2016
As many of you will be aware, in the Autumn Statement, the Chancellor announced some very significant changes to vehicle Salary Sacrifice arrangements, aimed squarely at removing tax incentives which he perceived to be unfair and which resulted in a reduced tax take.
Essentially, under the new rules, tax will be charged on the higher of the Benefit in Kind and the actual salary sacrificed. In a nod to the environment, ULEV’s will continue to have tax charged on the Benefit in Kind, with no reference to the amount of salary sacrificed.
The Chancellor also made it clear that existing arrangements, and those entered into prior to the adoption of the new rules on 6th April 2017, will be protected, with car arrangements in particular protected until 6th April 2021. This ‘Grandfathering’ is welcome.
However, the new rules will have a major impact on the attractiveness of low emitting vehicles (with the exception of ULEV’s) and will remove much of the financial incentive to choose such vehicles.
In addition, whilst the measure is specifically described as being an action on salary sacrifice, it has far wider implications for businesses offering staff a cash alternative to the company car. These individuals, in choosing the company car, will, in effect, be sacrificing the cash alternative, and will therefore be taxed on the higher of this cash alternative and the Benefit in Kind on the vehicle chosen (unless the vehicle chosen is a ULEV).
This is likely to bring a significantly greater number of drivers under the new arrangements, and will, at a stroke, remove the incentive to select a low CO2 vehicle (unless, again, it qualifies as a ULEV). We believe that this flies in the face of Government commitments to the environment, and damages a Benefit in Kind strategy which has successfully contributed to a continual reduction in the level of CO2 emitted by the average company car over the years.
We strongly suggest that all clients look carefully at their Company Car policies to ascertain whether they are likely to be affected by this change.
Article written by Peter Cakebread, MD
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