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  • A worsening prognosis for car salary sacrifice? Posted on 16 March 2016

    In a post last November I noted that in the small print of the Chancellor’s Autumn Statement was this comment from the Government on salary sacrifice schemes: “The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government will gather further evidence, including from employers, on salary sacrifice arrangements to inform its approach.”

    That statement followed an earlier note in the 2015 Summer Budget: “Salary sacrifice arrangements can allow some employees and employers to reduce the income tax and National Insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the taxpayer is rising. The government will actively monitor the growth of these schemes and their effect on tax receipts.”

    I suggested in November that while it was difficult to see the Government removing all salary sacrifice benefits, for example for childcare benefits, it was not so difficult to see an end to salary sacrifice scheme members having the right to (in effect) pay less tax on the purchase of expensive electrical items using discounted pre-paid shopping vouchers.

    It wasn’t clear then what the impact could be on salary sacrifice cars. There's a big difference in political terms between (for example) a nurse getting a modest tax break on a small car for driving to work, and a high-earning salesperson using salary sacrifice to splash out on a second expensive car.

    Today’s Budget Statement from the Chancellor gives a strong indication that at least some salary sacrifice cars are in the firing line. The Government confirms it wants to encourage employers to offer certain benefits but not others. It is confirmed that pension saving, childcare and health-related benefits such as Cycle to Work will stay eligible.

    So it does seem the Government is seeking to draw a line, in effect, between ‘worthy’ and ‘less worthy’ uses of salary sacrifice. Perhaps some cars will be deemed ‘worthy’ and others ‘less worthy’? It’s difficult to see how that would work other than possibly a cap on either the value of the car or its emissions, both of which seem fairly arbitrary measures of ‘worthiness’.

    So the prognosis for car salary sacrifice appears to be worsening although there’s still a long way to go before any firm decisions are taken. No doubt the providers and associations will be doing their best to show the benefits of salary sacrifice schemes to the economy.

    If car salary sacrifice was to be cut, we’re unlikely to see a shift back to the traditional company car model, particularly once IFRS 16 takes effect. Instead we could see the growth of alternative ways of providing personal car leases to employees that could still allow employees to benefit from the purchasing power of their employers for the vehicles, services and insurance, even without the tax perks of salary sacrifice. As ever with policy changes, there will be winners and losers.

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