Following on from last month’s Blog explaining the changes to benefit in kind announced in the Autumn Statement, we have received a number of questions which we answer below:
Q: Do the changes only apply to Salary Sacrifice arrangements, as this is what HMRC originally referred to in the autumn statement?
A: No, the consultation around salary sacrifice schemes has gone beyond the scope of the original brief and includes Type A and Type B arrangements. This means both salary sacrifice and some traditional company car schemes are impacted.
Q: Is this proposed change an absolute, and definitely going ahead with no amendment?
A: The Finance Bill was issued in draft format in December 2016 and comments were encouraged until 1st February 2017.
Lex Autolease have requested that the tax treatment of private use contributions, for example, as written in the draft legislation is reconsidered. However, it is expected that the legislation will be enacted as per the draft legislation. We understand the Finance Bill is to be published on 20th March and will receive Royal Assent in Summer 2017. We are hosting two Webex sessions to update customers on the changes announced on 20th March – please contact your account management team for registration details.
Q: Is there any point in taking a vehicle unless it is a ULEV?
A: Yes, employees can still benefit from choosing a vehicle that is not an ULEV, as they will continue to benefit from reduced NI contributions from the salary sacrificed.
Furthermore, the overall benefits of a company car, including hassle and risk free motoring will still exist for the employee (for example inclusive maintenance and insurance). In addition to this, if the employee chooses a lower emissions vehicle they will benefit from advantages such as lower fuel costs (typically the lower the emissions, the higher the vehicle mpg and therefore the lower the cost of fuel per mile driven). The removal of ULEV’s from the new legislation is a positive step for organisations and individuals. For the majority of cases the impact of these changes should be minimal for both organisations and individuals.
Q: What is meant by Essential Users?
A: Essential Users, also referred to as ‘Job Need’ employees, are those who are not eligible for a cash alternative. Consequently, the tax paid on the company car will continue to be based on the taxable list price of the car selected multiplied by the CO2 emissions % of the car, multiplied by their marginal rate of tax.
The new rules apply only where a cash alternative is available to ‘Perk’ or ‘Status’ drivers.
Q: Will HMRC be providing a remit for what can be classed an ‘Essential User?
A: The terms ‘Essential User’ and ‘Perk/Status User’ are typically used within the company car market, and are not official terms recognised and used by HMRC.
The key point is: does the employee have a choice of receiving cash which they are able to exchange for a company car benefit (and vice versa)? If the answer is yes then the new rules apply. If the answer is no, and this typically is someone deemed an ‘Essential User’ who needs a car to perform their role, then the current rules of taxing a company car benefit will continue to apply.
Q: What if my organisation operates real time payroll reporting?
A: It is our understanding that HMRC will not be changing their system to capture the changes in the 2017/18 tax year. However organisations whose systems are capable of capturing this can report the correct company car benefit.
For those employers who have Real time Information (RTI) systems that can accommodate new fields, it may make sense to collect any additional tax under RTI via the payroll in the month in which employees receive the optional remuneration arrangement from April 2017. This should help with any smoothing of employees’ tax bills.
Employers would continue to report tax on these BiKs via the payroll throughout the year and account for associated Class 1A NICs on the P11D(b) by 6th July following the tax year end.
Q: How will this affect people who take the cash option (i.e. ‘cash takers’)?
A: If an employee elects to receive the cash alternative in place of a company car, the cash amount will be subject to income tax and national insurance, as it is today. The changes only impact employees who elect to forego the cash alternative and choose the car.
We hope that you find the answers to these questions helpful. Please do contact us with any further questions via email@example.com and we will endeavour to answer your questions.