Managing director of Fleet Evolution Andrew Leech examines the changes to salary sacrifice and company car schemes following the recent HMRC review into employee benefits.
Salary sacrifice has long been a staple of benefits portfolios, enabling employees to ‘exchange’ gross pay for such things as pension, childcare vouchers and company cars. While it has helped maximise income for years, the sheer breadth of things now under its banner – from wine to white goods – is starting to come under scrutiny from HR managers. It was only a matter of time, then, before HMRC reviewed this area to ensure that employees were not living the high life at the expense of the exchequer.
The long-threatened review happened in November 2016, with the new regulations enforced from April 2017. There have been significant modifications to some benefits, while others have been altered more subtly.
The main change was the introduction of a corresponding ‘benefit in kind’ on any salary sacrifice benefit and the removal of the employer’s NI saving. For some schemes, this can cause a real headache, but others – gym membership, health plans and cars, for example – have always been subject to this sort of charge.
These schemes have always generated savings more from corporate discounts and lifestyle benefits, rather than actual tax savings, although these can still be significant on cleaner cars, which will get even cheaper in the future when proposed further company changes come into effect.
Reduce stress, increase productivity
In terms of the effects on employees, some benefits were largely untouched; benefits such as cars, gym membership and health plans have always attracted a benefit in kind tax, thus reducing savings. These savings with these schemes have always been driven more by volume discounts and VAT rather than income tax.
Of course, in general, salary sacrifice still has a place for a whole range of benefits, and it will still reduce employees’ financial stress and improve productivity.
Although employers’ NI savings may be removed for many benefits, less tangible benefits, such as improved retention, recruitment and productivity, will stack up.
The least-polluting models of cars are still 45% cheaper than retail; less environmentally friendly cars have been affected, but out of 3,000 models on Fleet Evolution’s scheme, only a couple of dozen have actually increased in cost, and many will become even better value.
From 2020, proposed company car tax changes will mean that the ultra-low-emission vehicles (ULEVs) will get even cheaper, and with options ranging from a Nissan Leaf from £300 a month (no deposit, everything but electricity included) to a Tesla, or new pure electric Jaguar ipace for £800 a month, there is something for every employee’s budget, lifestyle and aspiration.
There have been some losers. Living-wage increases are welcome, but many entry-level employees have no spare salary to sacrifice for a bike, let alone a car. Also, those who do large amounts of business mileage now have an increased benefit in kind if they choose non-electric/hybrid cars. There are solutions – but when one size doesn’t fit all, an expert is required to channel employees into the correct scheme.
Car schemes are one of the best ways to reward employees; vehicles are a big expense, and when they go wrong it can affect work as well as personal life. Finding the right provider can ensure that employees are protected from the stress and much of the financial cost of motoring, improving their overall well-being.
In addition, cost is key, so it pays to ensure that any scheme enables VAT savings to be passed on where applicable, as doing so offers the best value for employees.
Lastly, choose a provider that promotes the scheme fully and handles HMRC submissions; employee car schemes don’t have to be complicated and any good provider should remove all complexity, at no cost.