Salary sacrifice car schemes are changing…
It is estimated that 600,000 workers will be affected by the imminent changes to salary sacrifice car schemes.
Salary sacrifice car schemes are a popular perk for many employees. Currently, those who take advantage of these schemes have the cost of the car deducted from their salary, reducing the amount of tax and National Insurance that has to be paid.
The changes outlined in the 2016 Autumn Statement will take effect from April 2017. They will mean that any new salary sacrifice cars will be subject to income tax for the employee and National Insurance Contributions (NICs) for the employer.
There are two main exceptions to the changes:
- Employees who already have a car through salary sacrifice will not be affected by the change until April 2021.
- Ultra low emission vehicles (ULEV) – those emitting less than 75gCO2/km – will be exempt.
Why are these changes happening?
The government is taking action to reduce the difference between the treatment of cash earnings and benefits. Most employees pay tax on a cash salary, those that used salary sacrifice pay lower tax on benefits in kind. This has been deemed as ‘unfair’ by the government who have introduced the changes so employers and employees who use such schemes pay the same tax as everyone else.
What does this mean for businesses offering salary sacrifice car schemes?
These changes will mean that it is no longer financially advantageous for employers or employees to rely on salary sacrifice car schemes, with the exception of the two exemptions above.
HMRC has been clear that it will make no distinction between salary sacrifice and offering a cash allowance in lieu of a company car. Providers and employers will need to act appropriately to ensure that they comply with the new rules.
For advice on the changes to salary sacrifice car schemes contact Anne-Maree Dunn.