The new regime for salary sacrifice arrangements for cars. The optional remuneration legislation, which became effective on 6 April 2017, applies to salary sacrifice arrangements and ‘cash equivalent’ benefits.
The rules affect all new salary sacrifice cars ‘provided’ (i.e. ordered and delivered) on or after the starting date if the car has CO2 emissions of more than 75g/km.
The FA 2017 benefit in kind charge for a car made available under these arrangements is the higher of:
• the normal benefit figure (i.e. list price x appropriate % based on car’s CO2 emissions and fuel type); or
• the amount of salary foregone in relation to the benefit.
Where an employer agrees to a salary sacrifice arrangement involving a car, the employee is typically provided with a vehicle which is available for his private use, together with insurance, road tax, servicing and other running costs (these are separate and distinct payments/benefits from the provision of the car itself). Due to the way in which many car salary sacrifice deals are put together, contractual arrangements often reflect a global value of the benefit and this has resulted in some confusion as to what should be considered to be the amount of the salary foregone in relation to car benefit.
HMRC now requires employers to compare the amount of salary foregone for the car and that employers should not take into account any salary sacrifice relating to other payments and benefits such as insurance and servicing costs when considering the meaning of ‘higher of’.
Therefore, if employers have included in their calculations salary sacrificed for any payments and benefits provided in connection with a taxable vehicle, this represents an incorrect interpretation of the new legislation which could result in employees paying too much tax and employers paying too much Class 1A NICs.
If your business is offering these benefits then it is important to keep in mind that the following changes will apply to any arrangements made after 6 April 2017.
If you have any further questions about benefits in kind, contact us today by completing the form on our website.
Alternatively you can call us on 020 8977 0905 (Hampton Wick Office) or 01932 855644 (Weybridge Office) to speak to an adviser.