Tax perk crackdown will hit half a million company car drivers

MORE than half a million company car drivers face higher tax bills under a proposed crackdown on valuable perks by the Treasury.

‘Salary sacrifice’ schemes allow employees to give up some of their taxable pay for perks such as company cars.

Employees cut their tax and National Insurance bill, while employers have to pay less National Insurance for the employee.

The biggest savings are made by those who have opted for low carbon emission cars, which benefit from generous tax breaks.

The Treasury’s proposed rules could come into force next April and would effectively kill off tax benefits worth thousands of pounds a year for company car drivers. Under the plans, workers would be taxed on the full amount of salary sacrificed.

Campaigners said the majority of people who benefit are basic rate taxpayers – who have endured years of meagre pay rises – rather than executives.

But the Treasury fears salary sacrifice schemes – which can also be used for benefits such as gym membership and car parking spaces – have become too popular and that it is losing out on tax revenue as a result.

Jane Ellison, Financial Secretary to the Treasury, said: ‘This growth represents an increasing cost to the exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax advantages and those that don’t.’

There are around 100,000 employees whose cars are provided through salary sacrifice. But critics said the crackdown would also capture up to 500,000 more drivers of company cars.

These employees are offered a cash allowance – which will be fully taxed – or a company car, which often has a much smaller value for tax purposes. These ‘cash or car’ policies are not normally considered to be salary sacrifice schemes but they work in much the same way.

The BVRLA, a trade body for the vehicle rental and leasing sector, is campaigning against the crackdown. Chief executive Gerry Keaney said: ‘These schemes offer a valuable way of rewarding and retaining staff. Our research shows that 80 per cent of salary sacrifice drivers are in the basic income tax bracket.’

Howard Cox, of the motorists’ campaign group FairFuelUK, said: ‘The Government must not penalise people from moving onto greener cars – or companies that encourage their staff to do so – for the sake of a fast buck.’

Mark Groom, tax partner at consultancy firm Deloitte, said: ‘We estimate that over half a million people might have to pay more in taxes if they stick with their company car where they agree to a salary sacrifice or have a cash alternative.’

The Government said the crackdown includes tax perks on accommodation, workplace gyms and car parking spaces. But salary sacrifice schemes involving employers’ pension contributions, childcare and workplace nurseries will not be affected.