15 September 2016

ACFO chiefs meet with HMRC to highlight key fleet tax issues

ACFO, the UK's premier fleet decision-maker organisation, has discussed key tax-related issues impacting on fleet operators at a meeting with officials from HM Revenue and Customs (HMRC).

Topics under discussion included:

  • The recently published government consultations on three key areas of tax policy affecting the fleet sector – company car benefit-in-kind tax treatment of ultra-low emission vehicles (ULEVs), salary sacrifice schemes and how new lease accounting rules will impact on the tax treatment of leased assets.
  • The publication of Advisory Fuel Rates for plug-in vehicles in addition to those already produced quarterly for petrol, diesel and LPG fuelled company cars (hybrid cars are treated as either petrol or diesel).
  • Making fleet managers and company car drivers more aware of the ability for employees to make changes online to their car and fuel benefits that will affect their tax codes. That means Pay As You Earn employees, who have company cars, no longer have to wait for HMRC to update their tax code for them.
  • The impact on fleets of the 2016 Finance Bill clarification of the so-called ‘fair bargain’ loophole after the taxman lost a long-running legal battle against Sheffield-based Apollo Fuels and 20 of its employees. The business had provided cars under ‘market value’ leases to employees and argued they were exempt from benefit-in-kind tax, an issue contested by HMRC through the courts. The government subsequently revised the existing Income Tax (Earnings and Pensions) Act 2003 through the 2016 Finance Bill to exclude the application of ‘fair bargain’ to identified benefits-in-kind where the taxable value of the benefit was set out in law, such as company cars, vans and related benefits, as well as living accommodation and loans.

ACFO was represented at the HMRC meeting by chairman John Pryor and deputy chairman Caroline Sandall and they were joined by Jay Parmar, director of policy and membership at the British Vehicle Rental and Leasing Association.

The government is seeking responses to all three consultation documents over the coming weeks and ACFO will formally respond. However, Mr Pryor said that HMRC had made it clear that it also wanted to hear from individual companies and fleet managers.

Commenting on the ‘Consultation on Salary Sacrifice for the Provision of Benefits-in-Kind’ document, which explores the potential impacts on employers and employees should the government decide to change the way the benefits code applies when a benefit-in-kind is provided in conjunction with a salary sacrifice or flexible benefit scheme, he said: ‘ACFO considers salary sacrifice as a funding method and is therefore neutral in its viability.’

But the government believes that the growth of salary sacrifice, including for cars, has resulted in an increasing cost to the Exchequer due to the loss of tax and National Insurance contributions. The government has said that any changes to current rules would be effective from April 2017.

Mr Pryor added: ‘We have real concerns about introducing a change of this magnitude without mentioning any “grandfathering” in relation to existing salary sacrifice schemes. It would be unfair on drivers to force cost increases part way through a contract period.

‘ACFO is concerned about the timescale of the introduction of any changes if current rules are altered. Many companies will struggle to make changes for salary sacrifice car schemes by next April.

‘What’s more, employers with active salary sacrifice schemes and their employees potentially face unknown risks as vehicles are being ordered now and over the coming months without knowledge of what may happen in the future. There are a lot of issues and companies must assess the potential impact.’

Furthermore, salary sacrifice car schemes typically favour the uptake of low emission vehicles thus any move to limit demand could impact on government measures to further encourage take-up of low carbon dioxide (CO2) emitting models and mean some employees continue to drive older, privately owned vehicles.

Mr Pryor said: ‘We know that salary sacrifice schemes have been very successful in introducing low CO2 cars to employees – whether they previously had entitlement to a car or cash allowance – and that when no scheme is available, the private car driven typically has higher emissions CO2.’

Simultaneously, the government’s ‘Company Car Tax for Ultra-Low Emission Cars’ consultation document specifically seeks views on the design of benefit-in-kind tax bands for ULEVs from 2020/21 onwards to help further drive up demand.

The document outlines how existing CO2-based company car benefit-in-kind tax bands could be restructured with the potential to further differentiate between ULEVs by how many zero emission miles a vehicle could travel.

Mr Pryor said: ‘What the government is proposing makes logical sense. However, ACFO’s major concern is that just as the current tax system is straightforward to understand and administer that must be the case with any revisions. If a mileage element is introduced it must be fair and sensible.’

He added: ‘At the meeting, HMRC made it clear that it wanted to hear the views of individual fleet managers as well as company car drivers and not only those of trade associations such as ACFO. We are therefore asking our individual members to respond to the consultation documents.’

Referring to Advisory Fuel Rates for plug-in vehicles – a long-time ACFO call – Mr Pryor said: ‘I’m sure a banded system taking into account vehicle zero emission range can be devised.’

Commenting on HMRC’s online service for employees to update their company car and fuel benefit details Mr Pryor said: ‘It is a great service and easy to use. HMRC wants more employees to use the service and we will be encouraging our members to make their drivers aware of the system.’

On the amendment to the ‘fair bargain’ loophole, Mr Pryor said: ‘Our belief is that very few businesses are affected. However, HMRC indicated that perhaps more employers were effected than we envisaged.’

He concluded: ‘HMRC made it clear that it wants to have regular – perhaps quarterly meetings – with ACFO to discuss issues of mutual interest and concern. We are delighted that HMRC wants to engage with ACFO and we have an “open door policy” with them and would encourage officials to attend our meetings and seminars.’