Company cars next in line for the salary sacrifice chopping block

Cash for car schemes will be the new focus of HM Revenue & Customs’ (HMRC) consultation on the future of salary sacrifice arrangements.

Earlier this year, HMRC announced plans to limit the perks that could be gained through the salary sacrifice scheme, saying the tax advantages for some “will be reduced”.

They said the growth in salary sacrifice arrangements represents an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use the tax advantages, and those who don’t.

But the tax authority has now turned its attention to the 970,000 company car drivers on Britain’s roads.

“We are not looking just at traditional salary sacrifice, we are looking at when an employee can get a cash sum,” said a HMRC spokesperson.

“The most common is a car allowance where they can either get a car or a cash sum, which they can use on their own personal car or anything else. In this case, there will still be a direct convertibility to cash, and so the amount we will tax on the person who takes the car is the higher of the taxable values. This is based on CO2 emissions or the car allowance that the employer considers to be the same value – the car allowance amount.”

However, Gerry Keaney, chief executive of the BRVLA, a car leasing body, believes this change would have a significant impact on the company car market.

He said: “We are talking to HMRC to ensure they are aware of the potentially harmful consequences. These flexible benefit schemes provide a valuable way of extending the advantages of a traditional company car scheme to reward and retain staff.”

BRVLA adds that 80 per cent of salary sacrifice drivers are in the basic income tax bracket, and the scheme offers a viable way to provide them with a greener and safer car.