Company Car – Remuneration Package

Tax Question

My client is interested in providing a company car to a key member of staff. He wishes to make the offer by asking for a “salary sacrifice” The Vehicle will be an electric car with no emissions. However, I have heard that such arrangements now fall foul of recent changes in the legislation. Can you expand on this for me please?

Tax Answer

Before April 2017 a common approach to remuneration packages was to provide benefits by means of permanently giving up the right to a proportion of the salary in return for a benefit. The advantage was that a benefit, possibly of a lower taxable value could be provided. There was normally a saving for the individual. The result would normally be a reduction in the tax liability and a saving of Class 1 national insurance for the employee.

As from 6th April 2017, the legislation changed and partially attacked the savings available. Subject to certain exclusions, the measure of the benefit would become the salary foregone rather than the taxable value of the benefit. In the case of company cars the taxable value is derived from the manufacturer’s list price of the vehicle by applying a percentage based on the vehicle’s CO2 emissions. These are now known as Optional Remuneration Arrangements.

What is lost here is the tax saving although Class 1 NIC is still saved (The employer being liable to Class 1A on the value of the benefit as adjusted for the arrangement)

Importantly here, is the exception of low emission cars from the effect of the legislation. This exception will apply to all cars with emissions of 75 grams of CO2 per kilometre or less.

In the case of an electric vehicle, there will be no emissions so the Optional Remuneration Arrangements rules will not apply.

This will be of particular interest as there are high value electric cars now available on the market.

Related Tax Questions

Substantial Shareholdings Exemption

How does the Substantial Shareholdings Exemption (SSE) work?

How does the Cycle to Work Scheme operate and what is the benefit of a Cycle to Work Salary Sacrifice scheme?

How does the Cycle to Work Scheme operate and what is the benefit of a Cycle to Work Salary Sacrifice scheme?

Borehole Capital Allowances

My client has a farming partnership, they have recently paid out over £10,000 on a borehole. The borehole will be used to pump water for the crops they grow on their farm and drinking water for th

Navigating Class 2 National Insurance Changes and Contribution Credits

I have been asked by a client about the changes to Class 2 National Insurance Contributions. He has been told that he does not need to pay any Class 2 National Insurance Contributions as he will be

Cash Accounting – payments that are received via an agent or factoring company.

My client does their bookkeeping on Xero, where invoices are raised and then sent to Hitachi Capital who administer all invoices. The VAT returns are filed on a Cash Basis. However, it takes

Navigating Inheritance Tax Planning: Understanding Gift with Reservation of Benefit (GWRB) Legislation

My mother, who is elderly, has several rental properties that she has owned for many years and we are worried about potential Inheritance Tax (“IHT”) charges on death. However, she will also ne

Vantage Fee Protect Customer Testimonials

Having changed over to Vantage a couple of years ago we have been very satisfied with the service. Especially the claims handling and technical advice lines for both our firm and insured clients on employment and business legal matters. The webshop Vantage offer allows our clients to join and pay electronically. This positively impacts our bottom line and makes things simple and efficient for our clients.

Linda Giles Chartered Accountant

Real people, real results

Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.

Don’t be shy,
get in touch

Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.