Company car and van add-ons such as maintenance and breakdown cover are set to be taxed by HMRC under the Finance Bill put forward to Parliament, despite Government’s previous reassurances that would not be the case.
While previously only the vehicle itself was subject to tax, other elements such as replacement tyres, breakdown cover, insurance and maintenance will now cease to be tax-deductible.
This means employees who have entered into company car salary sacrifice schemes could end up paying more in tax per year, while employers could see an increase in Class 1A National Insurance.
Tax benefits for salary sacrifice schemes, known as Optional Remuneration Arrangements (OpRA), were originally introduced in April 2017 under conditions that only the vehicle itself would be taxable. A reversal on the position was announced in a policy paper published on July 6, but did not become binding until its inclusion in this week’s Finance Bill.
The Finance Bill reads: “The changes ensure that when a taxable car or van is provided through OpRA, the amount foregone includes costs connected with the car or van which are regarded as part of the benefit in kind under normal rules.
“In addition, the changes adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the year.”
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It added: “Where it is not possible to separate out the total amounts foregone in connection with the car from a number of benefits the amendment provides for an apportionment to be made on a just and reasonable basis.”
The cost of fuel and drivers of the vehicle remain tax-exempt under OpRA.
The last month has seen mixed signals from government around business and fleet vehicles.
In October’s budget, the Chancellor Philip Hammond announced the extensions of subsidies for businesses that invest in electric vehicle charging points until March 2023.The government also revealed it will review the impact of WLTP on Vehicle Excise Duty (VED) and company car tax (CCT), reporting its findings in Spring 2019.
However, earlier in the month it was announced that the government was abolishing a number of plug-in car grants for buyers of hybrid electric cars, and reducing the value of the only remaining grant – for only fully-electric vehicles will qualify – from a £4,500 to a £3,500 subsidy.