traffic-jam-688566_640 (2)

Company cars come under scrutiny of tax man

As ever, the government is looking for ways to bring in more tax, with the cash for car schemes now on the radar of HM Revenue & Customs’ (HMRC) following its consultation on the future of salary sacrifice arrangements.

This means that the tax collectors have zoned in on the nearly one million company car drivers on Britain’s roads, who will be anxiously looking at developments.

HMRC announced plans to put a ceiling on the perks that could be gained through the salary sacrifice scheme earlier this year, saying growth in salary sacrifice arrangements is an increasing cost to the country and creates a great disparity between employees and employers who use the tax advantages, and those who do not.

AHMRC spokesman had clarified they were not looking just at traditional salary sacrifice, but instead the way an employee can get a cash sum.

Generally, the most usual method is a car allowance where a person can either get a car or a cash sum, which they can use on their own personal car or anything else.  In such cases, there will still be a direct convert to cash, and so the amount taxed on the person who takes the car is the higher of the taxable values.

As expected, this is based on eco-friendliness of the CO2 emissions or the car allowance that the employer considers to be the same value – the car allowance amount.

It certainly is a change of direction and some professionals in the car industry believes this change will have a great impact on the company car market.

For instance, Gerry Keaney, chief executive of the BRVLA, the trade body for vehicle rental and leasing, has said his organisation is in talks with HMRC to ensure they are aware of the potentially damaging consequences.

“These flexible benefit schemes provide a valuable way of extending the advantages of a traditional company car scheme to reward and retain staff,” he said.

He added that 80 per cent of salary sacrifice drivers are basic rate level tax payers, and the scheme offers a viable way to provide them with a greener and safer car.

Like all accountants, we at AIT will be keeping a close eye on developments.