HMRC changes direction in taxing UK car benefits under OpRA HMRC changes direction in taxing UK car benefits under OpRA

HMRC changes direction in taxing UK car benefits under OpRA
06 Sep 2018

Salary sacrifice drivers in the UK could be hit with higher costs after Her Majesty’s Revenue & Customs (HMRC) said it planned to tax the package of benefits they receive with their car.

The fleet industry was initially told that insurance, maintenance, tyres and breakdown cover would not be taxed when the new tax regime for so-called Optional Remuneration Arrangements (OpRA) was introduced. 

But less than a year later, HMRC is now claiming it was an “oversight”, and that the benefits should always have been included. It is now looking to correct the situation and is consulting on the changes, which will apply from April 2019.

Industry estimates suggest that affected drivers could lose between £100 and £240 (US$130-$312) in tax per year. Employers will also end up paying more in Class 1A National Insurance.

Employment tax specialist Alastair Kendrick told Fleet News: "When those added costs are taken into account, the question is whether the employee is better off than if they had used their salary to buy an equivalent vehicle personally or via PCP."

The leasing industry, which has seen salary sacrifice grow in popularity over the last few years, is lobbying government to introduce a transitional arrangement or to introduce grandfathering - exemption from a new law - for those drivers that took out salary sacrifice deals from April 2017.

But HMRC appears to be standing firm. A spokesman said: "The government does not believe that grandfathering is appropriate – the changes intended simply ensure the rules work as intended."

The change will not affect P11D expenses and benefits reporting or tax bills until April 2020, and does not affect cars first supplied prior to April 6 2017. 

SG Fleet said that based on its worst-case scenario analysis, 43% of the 14,000 vehicles currently on its system would be affected if no grandfathering is permitted. But more than a third of them (36%) would see their monthly company car tax bill go up by less than £120 (US$156) a year as a result.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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Salary sacrifice drivers in the UK could be hit with higher costs after Her Majesty’s Revenue & Customs (HMRC) said it planned to tax the package of benefits they receive with their car.

The fleet industry was initially told that insurance, maintenance, tyres and breakdown cover would not be taxed when the new tax regime for so-called Optional Remuneration Arrangements (OpRA) was introduced. 

But less than a year later, HMRC is now claiming it was an “oversight”, and that the benefits should always have been included. It is now looking to correct the situation and is consulting on the changes, which will apply from April 2019.

Industry estimates suggest that affected drivers could lose between £100 and £240 (US$130-$312) in tax per year. Employers will also end up paying more in Class 1A National Insurance.

Employment tax specialist Alastair Kendrick told Fleet News: "When those added costs are taken into account, the question is whether the employee is better off than if they had used their salary to buy an equivalent vehicle personally or via PCP."

The leasing industry, which has seen salary sacrifice grow in popularity over the last few years, is lobbying government to introduce a transitional arrangement or to introduce grandfathering - exemption from a new law - for those drivers that took out salary sacrifice deals from April 2017.

But HMRC appears to be standing firm. A spokesman said: "The government does not believe that grandfathering is appropriate – the changes intended simply ensure the rules work as intended."

The change will not affect P11D expenses and benefits reporting or tax bills until April 2020, and does not affect cars first supplied prior to April 6 2017. 

SG Fleet said that based on its worst-case scenario analysis, 43% of the 14,000 vehicles currently on its system would be affected if no grandfathering is permitted. But more than a third of them (36%) would see their monthly company car tax bill go up by less than £120 (US$156) a year as a result.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

OTHER ARTICLES THAT MAY INTEREST YOU

Understanding UK Optional Renumeration Arrangements

Changes to salary sacrifice benefits 'destroying benefits value'

UK payroll changes continue to pile up into 2019

 

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