Richard Hipkiss' blog: Green intentions: the devil in the detail of salary sacrifice
11 July 2017
In its bid to boost Treasury coffers, HMRC has removed the tax advantages for employees taking benefits under salary sacrifice schemes.
The vast majority of company cars were not included among the few exemptions, such as pensions and childcare vouchers, written into the Chancellor's new rules. Only those employees taking cars with a CO2 rating below 75 g/km remain unaffected.
This nod to environmental sustainability, however, can be regarded as little more than a token gesture.
Employees opting for a salary sacrifice arrangement or taking a company car in lieu of a cash alternative will now pay tax on the higher of the existing company car benefit value and salary sacrificed or cash allowance given up.
Where cash allowances are offered by companies, the PAYE tax will invariably be higher than the company car tax liability under salary sacrifice. An analysis of our fleet customer base has highlighted significant deltas between the tax employees are currently paying on their company car and what they'd be paying if they reordered the same vehicle post April 6, 2017.
The tax advantages to employees for selecting low emission cars above the 75g/km threshold, consequently, may no longer apply.
Faced with a choice between either a VW Bluemotion Golf or Golf GTI, for example, all but the most environmentally-conscious employees may now opt for the 'gas guzzling' GTI.
Businesses with green ambitions should look to review their fleet policies in conjunction with their cash allowance arrangements. Some may even consider the withdrawal of cash allowances in a bid to successfully incentivise employees to reduce their carbon footprint.
While some harbour an interest in attracting personnel out of company cars to minimise fleet management demands - others may benefit financially from effectively removing vehicle acquisition from the legislation governing Optional Remuneration Arrangements (OpRA).
All too frequently, fleet policies and cash allowances are reviewed in isolation and, in some cases, are even overseen by different company departments. Cash allowances can be administered by HR or finance operations, for example, who fail to liaise closely with fleet or mobility manager to ensure joined-up decisions are taken in the interests of both the business and the environment.
We have opted to withdraw cash allowances at Fleet Operations. By doing so we have slashed vehicle acquisition costs, cut our employer's National Insurance contributions and reduced employee benefit-in-kind tax payments.
So, while government policy may have unwittingly hammered another nail in the climate change coffin - businesses still have the power to make a difference.