Car allowance tax revisions – are you aware of the changes?

Car allowance tax revisions – are you aware of the changes?
Martin Brown

Posted by

Martin Brown

March 2020

Changes to OpRA. Yes, yes, I know, very dull. That’s an ‘Optional Remuneration Arrangement’, if you’re at all unsure.

Still, I remember people talking very animatedly about the situation at a BMW Group fleet drive event, rather than the very impressive BMW 5 Series we had just been driving.

During lunch one of the new BMW 5 Series PHEV models was behind us, yet the lunchtime chat wasn’t about the car, but about car allowance tax changes.

Taxation changes that – at the time – had somehow slipped under the radar.

That was certainly the view of some of the fleet experts sitting around the table. They had firsthand experience of fleet managers and HR heads who just didn’t realise, or had not grasped, the implications of the tax change to salary sacrifice and cash allowance tax cars that commenced in April 2017.

Essentially it was this: salary sacrifice cars would be taxed on the benefit in kind or  the cash sacrificed, whichever was the greater.

The same goes for cash allowance drivers – they will have to pay a benefit in kind cash allowance tax on either the taxable benefit of the car or  the cash allowance, depending on which is greater.

Not only is this complex to understand, but it also creates administrative headaches too. Not only must the P11D value of the car be logged but also the amount of the cash alternative or cash sacrificed which stays with the employee for the duration of the benefit.

Complicated? Gets worse…

In June 2018 the government realised it had made a mistake. It hadn’t included things such as insurance and maintenance in the calculation of the amount of salary forgone in such an arrangement. So from April 06, 2019 any OpRA arrangements must include this as part of the car tax calculations.

So where am I going with all this – and are you still with me?

I’m going here: fleet management doesn’t have to be this complex for what are often marginal gains. Life can be simpler; and should be simpler.

Evaluating the new company car taxation rules is the answer. Because the benefit in kind changes from April 06, 2020, encourage drivers into ultra-low emission vehicles.

In fact, the lower the better: drivers of pure EVs get to pay no company car tax whatsoever.

We’ve already found that drivers are adjusting their company car choice to these new rules rather than taking the car allowance tax route.

Last year we saw the number of drivers choosing a sub-75g/km ULEV car soar: growth in 2019 was up 112% year on year.

The main winners were zero emissions cars such as the Tesla Model 3 and BMW i3, along with the plug-in hybrid Range Rover P400e PHEV with its BIK scale charge of 19%.

What’s more, it’s a trend we fully expect to accelerate throughout 2020 as drivers go down the all-electric route.

So OpRA… Yes, it’s a way to drive a car and potentially avoid some tax – but it’s complex to administer. And surely, the answer lies elsewhere: it’s on the road to zero emissions.

 

If you would like some help with the issues raised in this blog, then please contact us. Our fleet management experts can help clarify this complex area of taxation.


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