Press release: Beware the potential pitfall of accepting that better company car

The Association of Taxation Technicians (ATT) has told workers to beware of a potential pitfall if there is a change to their salary sacrifice scheme before April 2021.

Transitional provisions announced at the 2016 Autumn Statement were intended to ease those people who are currently using salary sacrifice schemes into a new set of less generous rules.1 But the ATT suggests that the application of these interim provisions may be more restricted than it first seemed.

The Chancellor announced in the Autumn Statement that existing salary sacrifice schemes would be allowed to continue with the current tax advantages until 5 April 2021, which was seen at the time as a welcome concession. However, the draft legislation published since states that this special treatment will be brought to an end earlier than 5 April 2021 if a variation is made to an existing scheme after 5 April 2017.

Yvette Nunn, Co-chair of the ATT’s Technical Steering Group, said:

“We are calling for clarity on what exactly constitutes a variation because it is not clear in the draft legislation, and the wording and examples used in its explanatory notes raise some concerns. Employees need to know what the real impact of a potential improvement in their work-related benefits will be and whether their tax will be increased by the changes or whether they really will be protected by the transitional rules. For some employees, the change could mean that they pay tax at 40 per cent instead of 20 per cent on part of their income.”

The example provided by HMRC of something which is not considered a variation is of a company car being stolen so that a different car has to be provided to the employee. This is obviously a change outside of the employee’s control. However, the ATT is concerned that the example implies that any voluntary change of vehicle, even for an identical model, would be considered a variation to the salary sacrifice arrangement and lose the transitional benefits.

The variation rules would seem to apply to many other benefits where there could be similar issues, such as where school fees are provided but the child changes school or living accommodation is provided but the employee moves from one property to another upon a relocation of employment.

Yvette Nunn said:

“It is unlikely that an employee will keep the same company car for the next four years. If a change of the actual car, rather than a wider change in the type of benefit being provided, is going to negate the original agreement and bring the transitional provisions to an end, then the proposed transitional provision is not as generous or as useful as first thought. This is likely to cause confusion and possible errors for workers and employers. Exactly how HMRC will determine the criteria for whether a change is outside of an employee’s control needs urgent clarity.”


Notes for editors

  1. The Government’s changes will limit the income tax and employer National Insurance contribution (NIC) advantages where benefits in kind (BiKs) are offered through salary sacrifice or where the employee can choose between cash allowances and BiKS. This measure is expected to impact individuals who are provided with BiKs under salary sacrifice or cash alternative arrangements. It is estimated that this will impact one million individuals. These are Individuals who receive BiKs from their employers through salary sacrifice arrangements or who can choose between cash allowances and BiKs. And there is an impact on employers who provide their employees with BiKs through salary sacrifice or offer BiKs with a cash alternative. More information here.
  2. The ATT’s formal submission on the change can be read here. This is a link to the draft legislation and this is a link to the explanatory notes.
  3. ATT Press release: Autumn Statement – Salary sacrifice changes risk adding complexity and unfairness, November 2016. Press release: Government fails to heed warnings as it moves forward with salary sacrifice reforms, November 2016
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