Salary Sacrifice and P11ds
Tax Question
Q.: My client has entered into a salary sacrifice agreement with his employees for the provision of company cars. What do I need to declare on the upcoming P11D?
Tax Answer
Salary sacrifice for a company car has specific implications for P11D reporting, which affects both the employee and the employer in the UK. Here’s a breakdown of what it means:
1. What is a salary sacrifice for a company car?
A salary sacrifice scheme means an employee agrees to give up part of their gross salary in exchange for a non-cash benefit — in this case, a company car.
2. P11D Reporting Requirements
The P11D form is used to report benefits in kind (“BIK”) to HMRC. For a company car obtained via salary sacrifice, the taxable benefit to report is determined under the Optional Remuneration Arrangements (OpRA) rules.
Under OpRA (post-April 2017 rules), the taxable benefit is:
The higher of:
- The BIK value of the car (based on CO₂ emissions, list price, etc.)
- The amount of salary sacrificed
So even if the BIK value is low, if the salary sacrifice amount is higher, that higher amount becomes the taxable value.
Implications
- This value must be included on the P11D form in Section F (Cars and Car Fuel).
- It affects the employee’s income tax and the employer’s Class 1A NICs (15% of the taxable value).
3. Exemption for Ultra Low Emissions & Electric Vehicles
The provision of any ultra-low emission vehicles (ULEVs) (i.e., ≤75 g/km CO₂), including fully electric cars, are exempt from the OpRA “higher of” rule, so the benefit is still calculated using normal BIK rules — making electric and plug-in hybrid cars more tax-efficient.
4. Fuel Benefit
If fuel is provided under a salary sacrifice arrangement for a car, the amount to be treated as earnings is the amount foregone, provided this is greater than the cash equivalent. The cash equivalent is treated as zero if the benefit of the fuel would be exempt but for being provided under optional remuneration arrangements.
5. Non-Supply for VAT Purposes
The provision of cars under a salary sacrifice scheme is treated as a non-supply for VAT purposes, meaning it is not considered an economic activity. This affects the VAT treatment but does not directly impact P11D reporting.
For more information, please contact us at: consultancy@vantagefeeprotect.com
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