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Salary sacrifice specialists have dispelled claims that the schemes will come to an end at the turn of the financial year. The Government announced plans to stop the practice, except for ultra-low emissions vehicles, from April 2017 in November's Autumn Statement, and grandfather existing schemes until 2021, leading many to believe they would terminate for all but non-ULEV cars.
Experts claim salary sacrifice will continue for conventional vehicles, though.
"A lot of people have got the impression that salary sacrifice is finished; it isn't, not at all," said Colin Knowles, chairman of Knowles Associates, which specialises in public sector fleet management. "What's happened is that HMRC has tried to put a brake on uncontrolled salary sacrifice, where firms offer all sorts of things like supermarket vouchers or even double glazing under salary sacrifice arrangements, and in a lot of cases, these schemes had no taxable benefit.
"When you've got a car under a salary sacrifice scheme, there's already a taxable benefit in place. Unfortunately, cars have been caught up in the general salary sacrifice policy change, so the income tax saving that the driver would have made has been removed but the NI (National Insurance) saving that the driver makes has not, so there's still a saving and, where there's a pension scheme in place, there's a saving in pension contributions. As far as the employer is concerned, the saving in NI on the payroll has been removed."
"Anybody can still salary sacrifice for a car, of any description," claimed David Hosking, CEO of salary sacrifice specialist Tusker, "but now, instead of saving tax and National Insurance on the salary sacrifice and paying the benefit-in-kind, if the BIK is lower than the sacrifice value, they will pay the higher amount of the tax saving - the tax they would have paid on the salary being sacrificed - or they'll pay the higher amount of the benefit-in-kind on that particular car. It basically means that anybody can have any car - they'll just pay the higher of those two numbers."
According to Knowles, 58% of salary sacrifice cars managed by his firm will be unaffected by the change in legislation, as high discounts on vehicles mean public sector employees are potentially less likely to be affected than those working for private businesses.
Similarly, Hosking said close to half of Tusker's existing drivers would be unaffected if they were to choose the same car after the legislative change: "If you look at all the cars we did in the first half of last year and apply the new rules to the same cars, 46% of our drivers wouldn't be affected at all. About 6% are already in a ULEV and the other 40% are already paying more in benefit-in-kind than they are saving on tax.
"Of the remaining drivers, 26% will see an increase of approximately £2.50 a month. Around half of the rest will see an increase of about £7.50 a month."
Some cars will be hit harder than most under the regime, though.
"About 11% of all the cars we did last year will see an increase of significant proportions," said Hosking. "The four cars that represent 70% of that 11% are the Audi A1, the Citroen C1, the Peugeot 108 and the Toyota Aygo. That's because they're just over 75g/km and therefore the worst hit by the new legislation. I would argue that anybody in one of those cars isn't going to pay an extra 30 or 40 quid for it, but they will choose something different; they'll choose one of the 89% of the cars that are affected by less than £7.50 a month."
"Generally speaking, salary sacrifice is still going to be cost-effective for drivers who are doing low business mileage or none at all," said Knowles. "The reason people join a salary sacrifice scheme is not because of the tax savings; I've never known anyone to say 'I'm going to save five pounds a month on my income tax, so I'll join the scheme'. They join because they've got access to a scheme they never had access to before, and they can get a very cheap car without any deposit or any credit checks.
"I've spent the last couple of months explaining what the real situation is to my clients who thought 'oh well, salary sacrifice has finished, that's the end of that'. Not one customer has said 'we're going to pull out'."
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