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Proposed changes to salary sacrifice taxation will penalise low paid workers

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Tusker is urging the Government to consider the impact of adding NI charges to cars under a salary sacrifice scheme. With comment from David Hosking, Chief Executive Officer – Tusker.

Charging NI on the Benefit In Kind on a company car has a much bigger impact on employees paying the basic tax rate than it does on those paying the higher rate of income tax.  Employees paying the basic tax rate will pay an additional 12% NI, whereas those paying 40% income tax will only see an increase of 2%. Research by the BVRLA has shown that 80% of salary sacrifice drivers are basic rate tax payers.  Many of these are public sector workers who have received minimal pay increases over the last few years and use salary sacrifice to make their pay go further.

The Government is also at risk of contradicting its own stated aims and objectives regarding low CO2 vehicles.  Since they were reformed in 2002, the BIK structure for company cars has encouraged the uptake of low CO2 vehicles, accepting that tax revenues will drop in order to lower emissions.  The proposal regarding salary sacrifice cars will unfairly penalise drivers of low CO2 vehicles in order to recoup lost tax revenue, contradicting the original policy.

Because of this favourable tax structure that the Government has created, the uptake of low CO2 vehicles, hybrids and electric vehicles is much higher under salary sacrifice than for new car sales as a whole.  This has had a hugely positive impact on the average CO2 of this group of drivers – 101g/km compared with 121g/km of all new car registrations according to the SMMT.  Indeed, at the same time as this Consultation paper was released, the Government has issued another to explore ways to encourage the uptake of Ultra Low Emission Vehicles. Whilst some salary sacrifice schemes offer goods or services that don’t attract Benefit In Kind tax at all (some schemes offer mobile phones, iPads and even cases of wine), cars are a very different proposition.  They not only generate BIK, but further tax revenues for the Treasury throughout their life-cycle.

Research carried out by PwC found that many salary sacrifice cars are tax positive, due to the additional revenue from VAT on additional services, lease agreements and disposal costs. Because British built models are very popular, and all cars are sourced through UK franchised dealers, salary sacrifice also supports British jobs, giving even more to the economy. Salary sacrifice offers employees greater access to a new car than any other form of finance.  There is no credit check, no deposit and no upfront fees.  Drivers have fixed cost motoring for 3 years with insurance, servicing, mechanical repair and tyres included.  The majority of the savings come from large corporate discounts from suppliers rather than from tax savings.

Salary sacrifice for cars opens up the opportunity to drive a brand new car to a much wider employee population.  Company cars are no longer reserved for sales people and perk car drivers. Tusker’s own database shows that many drivers are moving from vehicles up to 10 years old and couldn’t otherwise afford to drive a brand new car.  They are moving into safer cars, as the proportion of NCAP 5 and 6 cars is very high under salary sacrifice. These proposed changes are regressive as they penalise lower paid workers and drivers of low emission vehicles, they will halt the move from older cars to safer and lower emission cars, and this will not necessarily lead to greater tax revenues for the Treasury. It seems that salary sacrifice cars have been caught in the crossfire as the Government seeks to eliminate the practice of employers offering benefits that either do not attract any tax on a Benefit In Kind or those that solely deliver tax savings.  Company cars clearly do not fall into this category.

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