Could it be the end for Salary Sacrifice Car Schemes?

The government issued a salary sacrifice consultation period on 10th August which will run until 19th October, whereby they will be exploring the potential impact to employers and employees should they change the way Benefit-in-Kind (BiK) works with salary sacrifice and flexible benefit schemes.

Reasons for the salary sacrifice consultation

Within the salary sacrifice consultation, HMRC will be considering limiting the range of benefits-in-kind that attract Income Tax and National Insurance Contributions advantages when provided as part of salary sacrifice arrangements. This is following from previous concerns on the growth of salary sacrifice arrangements and their fairness on the tax system.

HMRC believe the continued growth of such schemes is representing an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages, and those that don’t. This concern stems from the fact that many employees paid on or just above the legal minimum wage level are unable to utilise the salary sacrifice mechanism.

What the changes mean for fleets

The proposed changes mean that employers will still be able to offer such schemes, however, the tax and employer NICs advantages for some BiKs will be reduced. The unfortunate reality is that salary sacrifice car schemes have offered a valuable way to reward and retain employees in times when it has been difficult to offer pay increases. The majority of employees benefiting from the schemes are within the basic income tax bracket and so they were able to drive newer, cleaner and safer cars as a result. If implemented, the proposed changes could spell the end for a number of salary sacrifice arrangements and some flexible benefit schemes.

As a result of the proposed changes, many employers will be forced to either remove or reduce the salary sacrifice options that they offer in the future. Employers will need to take time to review their arrangements and consider what will be sustainable for the long term. It will be a balance of what they can offer versus trying not to cause disruption by taking such perks away. Many employees currently benefiting from a salary sacrifice car scheme will no doubt see a reduction in their take home pay as a result, and it is important to start communicating this with them now so that is doesn’t come as a surprise in April 2017 when the new rules will apply.

Have your say, and make sure you comment on how the proposed changes will affect your business fleet before October 19^th.