The government has clarified its stance on salary sacrifice car schemes following confusion within the industry over the changes announced in last year's Autumn statement.
Tusker, a salary sacrifice car scheme provider, said there had been ongoing confusion as to the impact salary sacrifice restrictions would have - with many fearing the cost effectiveness of salary sacrifice schemes would be significantly reduced.
In a bid to resolve the issue, Tusker met with both HM Treasury (HMT) and HM Revenue & Customs to clarify the issue - confirming that the new rules affected only the amount sacrificed for the car itself, and excluded maintenance and similar costs.
It also confirmed that, while the changes came into effect from 6 April this year for new agreements, existing ones are protected until April 2021 and ultra-low emission vehicles (ULEVs) are completely exempt from the changes.
Tusker chief executive David Hosking said: "We decided that uncertainty had been in the market for too long. Our customers and the benefits industry overall needed clarity around salary sacrifice cars.
"We went directly to the source. In a recent meeting, along with our policy advisors from EY and the policy leads from both HMT and HMRC, we received confirmation that our understanding of the rules, and how we were implementing them, was correct."
EY global head of tax policy Chris Sanger added: "Although these calculations are on the face of the legislation, it is extremely helpful to have definitive confirmation that an approach which compares the cost of the car alone with the amount sacrificed, fits with both the letter and spirit of Government's policy".
Hosking added: "Government has always been clear when making changes to legislation that they want to protect car benefit schemes and reduce emissions. Since 6 April this year, our ULEV fleet has grown 10%, so this has definitely been a positive move in meeting those objectives.
"For us, this confirmation of the legislation provides absolute certainty that cars can continue as a cost effective benefit of employment."
The rules in depth
As part of its restriction on salary sacrifice schemes, the government updated the Optional Remuneration Arrangements (OpRA) rules.
The OpRA rules are primarily contained within section 69A and s69B of the Income Taxes Earnings and Pensions Act 2003 (ITEPA).
Section 69A (2) of ITEPA refers to "a benefit" and s69A (5) refers to "just and reasonable attribution when across a number of benefits". Section 69B (2) and (3) make provision for a just and reasonable apportionment if there is no clear division of the OpRA between benefits, and section 69B (5) confirms that a benefit includes any benefit or facility.
Section 120 and s120A govern the tax charge on the provision of the car, calculated on the provisions in s121 and s121A depending on if there is an OpRA and if the cash foregone figure is lower or equal to, or higher than, the modified cash equivalent (respectively). The cash foregone figure is the amount relating to the car alone. This is the taxable benefit in kind (BIK) for the provision of the car.
The services provided along with the car would normally be chargeable, as any miscellaneous goods or services, under chapter 10 of Part 3 (residual liability to charge). However, to prevent additional burdens, s239 (4) removes the liability to income tax for "benefits connected with taxable cars".
Normally, s228A removes all exemptions under Part 4. However s228A (5) (a) protects s239 as an "excluded exemption", meaning s239 remains in force.
The overall effect is that:
- Chapter 6 of Part 3 brings into charge company cars, and the comparable amount is the cash foregone in respect of the car, not the entire cash foregone
- Section 239 removes the charge on the miscellaneous services provided with the car, and is not impacted by s228A.
