The government has done its best to give the company car a good duffing. A bit of a sort out. Show who’s boss. That sort of thing.

With its gloves laced with a bit of extra lead for additional follow-through, here are some of the highlights:

  • 4% surcharge on diesel cars – boof!
  • Withdrawal of PHEV Plug-in Car Grant – bam!
  • Company car tax for EVs rising to 16% – thump!

No wonder the company car is staggering around the ring looking dazed and confused. And waiting to be floored by the next knock-out blow.

It makes you wonder why company car drivers bother sometimes. It’s certainly one reason why we are seeing an increase in the number of salary sacrifice drivers surfacing.

Salary sacrifice is where you opt to take a cash allowance for a company car. The cash allowance is designed to cover everything except fuel: so lease, insurance, maintenance and so on.

Not that HMRC hasn’t got its eyes on salary sacrifice. In a complicated little formula you pay either the benefit in kind on the company car you have decided to leave behind or the tax on the salary sacrificed. Whichever is the higher – unless the salary sacrifice car you choose is a sub-75g/km model which is exempt from such arrangements.

For the technically minded this is called OpRA or an Optional Remuneration Arrangement.

Don’t get me wrong: OpRAs can provide a useful way of providing a car to staff and have their place in the funding spectrum for employer provision of vehicles.

However, I don’t think it’s right that such an arrangement should be to the detriment of the company car – which still remains a valuable tool for business and has an important role in any employee retention package.

And to a certain extent, so does the government. HMRC is introducing a new rule that affects OpRA arrangements from the new tax year in April 2019. It effectively says that the whole value of the cash allowance should be considered – and that includes the cost of maintenance and insurance.

Until now, only the car value of the salary sacrificed was included. HMRC has now closed that gap, saying:

“The proposed legislation will ensure that the OpRA rules work as intended.

“It ensures that the value of the amount foregone includes any amounts given up in respect of connected costs. Under the provisions of the current OpRA legislation, the value of any connected costs is not included when calculating the value of the amount foregone for a taxable car or van.”

So, say of the £500 sacrificed, only £375 was for the car, while the rest was for insurance (£125). Previously only £375 would be considered for benefit in kind; from April it’s the full £500.

It says it was an ‘oversight’ when the OpRA changes were made in Finance Act 2017.

The change will add extra cost to employees in terms of benefit in kind taxation and to employers in terms of Class 1A National Insurance contributions.

This may not in itself be enough to save the punchdrunk company car. But it’s a step in the right direction to give more balance to the provision of vehicles and their taxation.

Next step: the Chancellor’s spring statement, when (hopefully) we will get some promised clarity on future company car benefit in kind taxation tables.

In the meantime, the company car is sitting in the red corner bloodied and a bit bust up; but it’s not broken yet.

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