Half a million drivers to face company car tax clampdown

Salary sacrifices involving company cars face a review where a tax loophole could be closed

Company car tax

Half a million drivers in the UK could face higher bills as the Government looks to close a company car tax loophole. 

HM Revenue & Customs (HMRC) has proposed tax reforms on salary sacrifice schemes which enable employees to reduce annual salaries in favour of perks such as cars.

Schemes have grown by a third in the last five years in part due to generous tax breaks by the Government for low-emissions cars. 

The system is beneficial to employees, as they pay less in tax on the car than on their salary. Employers also benefit by paying less in National Insurance contributions. 

Company car tax guide 2016: all you need to know

The new consultation looks to reverse the trend by closing the tax gap and raising millions more for HMRC. The tax hikes would not affect other benefit-in-kind packages like medical insurance, annual leave, or cycle-to-work schemes, and is mainly aimed at high-value perks such as company cars. 

Audit firm Deloitte estimates half of the one million company car drivers in the UK who have exchanged part of their salary for a company car or received a company car instead of a cash alternative could be affected by the new law, leaving them thousands of pounds out of pocket a year. 

Best company cars 2016

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 tax advantages, and those that don’t.” But Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association, is in favour of the schemes.

He said: “These company car schemes offer a valuable way of rewarding and retaining staff, particularly for many public sector organisations who have had to struggle with long-term pay freezes. “The new car sales generated by salary sacrifice schemes also give a valuable boost to the UK economy.”

How the new proposed laws will work

BMW 330e 2016 - front tracking

According to Deloitte, if an employee with a £7,520 cash allowances opts for a BMW 330e as a company car, the car will have a tax benefit in kind value of £3,060. If the employee is in the 40 per cent income tax bracket, under the current laws he will only pay 40 per cent tax on the £3,060. His bill for the year would be £1,224. 

Under the new laws, the Government would make him pay the entire tax value of the car, so £3,060 - costing him an additional £1,784 for the year. 

Are you a company car driver? What do you think of the new proposed laws? Tell us in the comments below 

Recommended

VED road tax: how much does it cost?
car tax calculator
Consumer news

VED road tax: how much does it cost?

Confused by VED road tax? Our comprehensive guide explains how much you'll pay on your next car
25 Sep 2020
Dartford Crossing toll: follow our guide and avoid a fine!
Dartford Crossing bridge
Consumer news

Dartford Crossing toll: follow our guide and avoid a fine!

Read our complete Dartford Crossing guide for when and how to pay the Dart Charge, along with guidance on appealing a fine
25 Sep 2020
Should you buy or lease your new car?
Tips & advice

Should you buy or lease your new car?

Should you buy or lease your new car? That is the big question facing millions of people who are eyeing up a new set of wheels, we talk you through th…
23 Sep 2020
Company car tax guide 2019/2020: everything you need to know
Consumer news

Company car tax guide 2019/2020: everything you need to know

Strict new emissions tests will affect how much company car tax we pay. Here we look at how the system has changed
23 Sep 2020

Most Popular

New 2021 BMW M3 launched with huge grille and 503bhp
BMW 3 Series M3 Coupe

New 2021 BMW M3 launched with huge grille and 503bhp

The new sixth-generation BMW M3 Competition saloon gets a 503bhp straight-six engine and four-wheel-drive
22 Sep 2020
New 2020 Volkswagen ID.4 electric SUV revealed with up to 323 miles of range
Volkswagen ID.4

New 2020 Volkswagen ID.4 electric SUV revealed with up to 323 miles of range

The new Tiguan-sized Volkswagen ID.4 electric SUV becomes VW’s second ID. model, rivalling the Tesla Model Y
23 Sep 2020
New Range Rover Velar PHEV launched with 33-mile electric range
Land Rover Range Rover Velar

New Range Rover Velar PHEV launched with 33-mile electric range

Land Rover has given the Range Rover Velar an update, with a new plug-in hybrid powertrain and an improved infotainment system
23 Sep 2020