Salary sacrifice under threat – but why?

Should you be worried? Should we be worried?

Here’s why: potentially salary sacrifice cars could be under threat following a review by Her Majesty’s Revenue and Customs (HMRC).

HMRC is considering the benefit in kind treatment of salary sacrifice cars (whereby staff forgo some salary in return for a company car – to the advantage of those employees who would not normally qualify for such company provided vehicles).

My view is and always has been, that salary sacrifice is a good niche offering, but not a mainstream answer to the provision of company cars. That aside, what concerns me more is the mixed messages coming from the Financial Secretary to the Treasury, Jane Ellison, with her consultation document.

The government has made it clear it supports Ultra Low Emission Vehicles (ULEVs) – the government’s goal is that by 2050 nearly all cars and vans in the UK fleet should be zero emission vehicles. Indeed, in another consultation paper just issued, HMRC is considering whether the tax treatment of ULEVs is appropriate to encourage their increased take up by business users.

And this is where the contradictions appear, which is my worry: many of these ULEV drivers are salary sacrifice customers – because, to make salary sacrifice work, you need to drive a very tax efficient car.

If the benefit in kind treatment of salary sacrifice cars changes, ULEV vehicle take up could suffer as a consequence.

In fact, the trade body for the vehicle renting and leasing sector, the BVRLA, feels so strongly about this, that it’s lobbying on this consultation. Their arguments focus on the fact that the average salary sacrifice car has CO2 emissions of just 104g/km, is less than 18 months old, and is more likely to meet the latest safety and emissions standards.

And the vehicles that these salary sacrifice cars replace are more polluting and offer a far less sustainable answer to ‘grey fleet’ usage of private cars on business travel.

So what’s the answer?

If HMRC decides to alter the benefit in kind treatment of salary sacrifice cars then in return I believe it should change the company car tax treatment of ULEV vehicles in a way that would incentivise sales to drivers, as well as offering employers encouragement to provide a broader range of staff – not just the job function or perk car drivers – a ULEV company car, aided by a significant tax sweetener.

In that way you create demand for ULEV vehicles and make their company provision easier – while at the same time reducing the usage of older cars.

A good idea or not, do you think?

But whatever the final outcome of the HMRC’s consultations, one direction is clear: low emission cars are the future and the most tax efficient answer to company car drivers.

If you want more advice or help in understanding the switch to ULEV cars, then consult our eco-Fleet section – it’s full of useful tips to help your fleet go green.