Giving up part of your salary in exchange for a car is hugely popular as a benefit, but one that is coming under Treasury scrutiny. Nic Paton looks at how the company car has evolved
If you search for ‘car salary sacrifice schemes’ online, it’s immediately obvious just how popular this benefit is becoming. A recent news search showed that in the previous three months employers from Travis Perkins, Atos, the University of Lincoln, Aegeas, and Aberdeen and Aberdeenshire City Councils had all introduced salary sacrifice-based car schemes for their staff. And that was just on the first page.
Cars are, of course, just one among a growing number of things employees can sacrifice salary against. Among other things, they can sacrifice part of their gross salary to bump up their pension, pay for childcare vouchers, get a bike through a cycle-to-work scheme, pay for a mobile phone, computer equipment and even boxes of wine.
The fact it is gross salary that is being sacrificed, and therefore the Treasury’s tax take that is potentially being hit, means it is little wonder the government has started to take notice of the effect this burgeoning market is having on its revenues.
Last year, former pensions’ minister Steve Webb flagged up that salary sacrifice might be vulnerable to a Treasury clampdown. After initial rumblings in the 2015 Autumn Statement, this warning was confirmed by chancellor George Osborne in his Budget in March, with the government highlighting that clearance requests for salary sacrifice arrangements from employers to HM Revenue & Customs had increased by more than 30% since 2010.
Therefore, ministers were “considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes”.
Pension saving, childcare and health-related benefits such as cycle-to-work were given, in effect, a ‘Get Out of Jail Free’ card, with the Treasury confirming they “should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements”.
But, by inference if nothing else, everything and anything else provided via salary sacrifice could now be in the Treasury’s sights.
So, what is this likely to mean for car schemes? Are they really in danger? How can, will and should providers and the fleet market demonstrate to the Treasury they should be left alone?
Providers, naturally, have been quick to argue the case for car salary sacrifice, with the British Vehicle Rental and Leasing Association (BVRLA), for one, highlighting that “any changes would impact on the estimated £4,500 that HMRC receives in tax revenue per year from each salary sacrifice car”.
Claire Evans, head of consultancy at Zenith, agrees there is a strong case to be made to the Treasury and HMRC in favour of car salary sacrifice.
“Zenith has been keeping close links with HMRC, the Treasury and lobbying groups such as the BVRLA on this issue. The general consensus is that HMRC has been looking to close down salary sacrifice schemes only where the benefit is not subject to tax, in other words, where the scheme is not producing revenue for the Treasury,” she says.
“With this in mind, we have every confidence that cars are not one of the salary sacrifice benefits that the government is looking to stop,” she adds. The fact car salary sacrifice is most tax efficient for – and therefore skewed towards – more environmentally friendly, lower CO2-emitting vehicles is another compelling argument in its favour, she contends.
“In 2014, the average CO2 for our salary sacrifice fleet was 99g/km, significantly lower than the Society of Motor Manufacturers and Traders (SMMT) average of new car registrations at the time of 124.6g/km,” Evans points out.
Then there is the democratising influence of salary sacrifice on the company car market, in that salary sacrifice has moved company car ownership from being an executive perk to something accessible to a broader staff population.
And this, in turn, as Suzanne Phillips, national fleet consultant at Hitachi Capital Vehicle Solutions, argues, has had the benefit of shifting employers away from potentially less safe private “grey fleets”.
“As salary sacrifice schemes typically include all servicing, maintenance and repair costs, including insurance and tax, employees and employers can be assured of the safety and condition of the vehicle with any required maintenance covered within the monthly fees,” she says.
Steve Herbert, head of benefits strategy at consultancy Jelf Employee Benefits, argues that the popularity of car salary sacrifice could also give ministers pause for thought. “It’d be fair to say that of all the benefits in the workplace, rightly or wrongly, having a company car is one of those that, when they have it, people do love and often put disproportionate value on it,” he says.
“I have no doubt that providers will come up with solutions and alternatives. These are definitely not going to be as attractive, either to the employer or the employee, but there will be solutions to keep people happy,” he adds.
What might the solutions be?
One obvious area that could come back into favour, although it is more expensive for employers to do, would be to return to conventional cash allowance company car schemes, where an employee is simply given cash for a car or cash instead of a car.
There could be renewed interest in employee car ownership (ECO) cash-for-car schemes, suggests Matt Walters, head of consultancy services for LeasePlan. Under an ECO, the employee owns rather than leases the car, through a credit sale agreement, and simply makes repayments directly from their salary.
Employers might simply rebadge and rename their schemes as a company perk, predicts David Hosking, chief executive of Tusker. So, rather than an employee salary sacrificing a figure out of their wages each month, they’d simply agree for their salary to be reduced by the same amount and, in return, get the car as a perk.
Schemes based around a personal leasing contract between the employee and the provider, rather than between the employer and provider, or based around net rather than gross pay, might also become more popular.
For example, Novalease at sgfleet already offers this more flexible model, as director Guy Roberts highlights. “This does give the safety net that, if salary sacrifice were somehow suddenly to be scrapped or made much less attractive, you could just switch off the salary sacrifice element.
“The risk where the contract is with the employer is, of course, that employers could suddenly find a lot of people preferring to hand their cars back instead,” Roberts points out.
Lifestyle Lease, which has been brought over to the UK from Australia by provider Maxxia, is a similar model, in that the agreement is held with the employee rather than the employer and can therefore easily be taken from one job to another.
On the consultation process, Gordon Calder-Jones, business development director at Maxxia, says “Like everyone, we are awaiting the consultation outcome. We have contributed to the feedback process and hope that salary sacrifice will still be viable for funding vehicles into the future. In the meantime our advice to organisations that are thinking about implementing a salary sacrifice car scheme, is to hold fire on their decision making.”