HMRC clarify application of salary sacrifice rule changes for company cars
With effect from 6 April 2017, where non-cash benefits are provided to employees under an ‘optional remuneration arrangement’ (‘ORA’), more commonly known as salary sacrifice agreements (albeit ORA includes more than just conventional salary sacrifice), then the amount of benefit to be reported on the P11D form is the higher of the amount of salary ‘foregone’ and the usual taxable value of the benefit in kind.
There are certain exclusions from the rules, including pension contributions, childcare vouchers and cars with emissions of less than 75g/km, and there is also an extended lead in period for arrangements which existed prior to 6 April 2017 and have not been renewed or altered since that date.
For cars with emissions of greater than 75g/km, HMRC have now at least conceded a point on the correct comparison of values for establishing the “amount of salary foregone” where they are provided to employees under an ORA.
Only the amount forgone from salary which relates to the car and any accessories should be compared to the cash equivalent value based on the vehicle’s list price and emissions.
Any amount of salary foregone that relates to additional services provided in association with the car such as; maintenance, servicing, or insurance, must be ignored when reporting on the P11D.
This could lead to a lower P11D value than had been anticipated when the ORA changes were first announced. It is good to see this acknowledged publicly on page 2 of the HMRC Employer Bulletin.
An employee sacrifices salary of £250 per month but only £200 is for the car as £50 is for maintenance and insurance of the vehicle.
The car benefit cash equivalent value is £2,800 based on the CO2 emissions table for 2017/18 and its list price.
The amount of salary sacrificed is £3,000 (£250 x 12 months), but only £2,400 of this (£200 x 12 months) relates to the provision of the car itself.
Therefore the P11D benefit can remain at £2,800, as it would have been under the old rules.
For further information or advice, please contact:
t: 01245 254221
t: 01702 606845
This is intended as a summary and overview of the tax situation and does not constitute financial advice and no action should be taken without first seeking professional advice specific to your circumstances.