Leasing Professionals

Graham Hale urges the UK Chancellor not to tamper with salary sacrifice for cars – for a host of crucial reasons

hale graham

I urge Chancellor George Osborne not to tamper with salary sacrifice cars schemes, and risk losing substantial amounts of revenue, since the schemes are tax positive for the Exchequer.

Osborne announced in his 2016 Budget Statement that the government was concerned about the growth of salary sacrifice schemes and their impact on tax revenues. Clearance requests for salary sacrifice arrangements from employers to HMRC had increased by over 30% since 2010.

The government was therefore considering limiting the range of benefits that attracted income tax and National Insurance Contribution (NIC) advantages when they were provided as part of salary sacrifice schemes, the Chancellor said.

However,  the government’s intention was that pension saving, childcare and health-related benefits such as Cycle to Work, would continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements, although the Chancellor made no mention of salary sacrifice for cars.

The Chancellor should resist the urge to tamper with salary sacrifice car schemes as they are ‘tax positive’ to the Exchequer, and they open up wider car ownership to lower paid workers who would not otherwise be able to afford it.  They also promote the uptake of cleaner, ‘green’ cars with low carbon emissions.

Whilst salary sacrifice car schemes are undoubtedly tax beneficial to employees, HM Treasury achieves a net tax positive since, through the company car status provision, the employee pays Benefit-in Kind-tax linked to the P11D and CO2 emissions rating of the car, while the employer pays Class IA NICs on provision of a company car to the employee.

Furthermore, 50% of the VAT on the finance lease rental is irrecoverable by the lessee since the car is used mainly for domestic rather than wholly business use, plus the insurance element of the sacrifice itself attracts Insurance Premium Tax.

Finally, the lease provider, as owner of the car, pays over VAT when the car is returned at the end of the salary sacrifice period and sold. Taken together collectively, salary sacrifice cars are net tax positive to the Exchequer and the Chancellor risks losing that revenue stream if he tampers with their provision.

At the same time, salary sacrifice car schemes are instrumental in lowering carbon emissions and promoting greener motoring.

Emissions on our own salary sacrifice fleet have fallen to an average of 109g/km. This is of no surprise because pricing is directly linked to the CO2 emissions rating of the car, hence employees are encouraged to drive the lowest CO2-emitting cars available to benefit from the lowest possible pricing.

This actively supports and helps the government to achieve its own CO2 emissions reduction targets as part of a world-wide greener objective.

Salary sacrifice car schemes are also instrumental in helping the lower-paid into new cars when they would have struggled to acquire them otherwise.

Our own experience shows that the benefit is most popular for basic tax rate payers. Therefore, withdrawing or restricting its supply will impact on the lowest paid in our community.

This would be particularly unpopular in the public sector where austerity measures are most prevalent, especially in local authorities and NHS Trusts which have been early adopters of car salary sacrifice arrangements and which have seen them gain increasing popularity over recent years.

The UK fleet industry should lobby the Chancellor hard to press home the beneficial aspects of salary sacrifice car schemes, and perhaps the British Vehicle Rental and Leasing Association (BVRLA) is the natural mouthpiece for such action.

We would welcome any attempts by the BVRLA to lobby government and would be happy to play a role. In the meantime, we will continue under a ‘business as usual’ approach to service the high customer demand we are experiencing for this benefit via our Car Salary Exchange brand.

Fleet Hire, which founded its Car Salary Exchange division four years ago and has over 100 salary sacrifice car schemes in both private and public sectors, has seen carbon emissions fall to an all-time low for all new cars provided.

Graham Hale is chief executive at contract hire fleet management and salary sacrifice provider Fleet Hire