You may be aware that some concern has been expressed in the fleet industry of what appear to be unintended consequences of provisions in the Finance Bill 2011 in respect of “disguised remuneration”.
The legislation is intended to deal with arrangements that the Government sees as designed to disguise remuneration to either avoid or defer the payment of income tax and National Insurance (NI). The disguised remuneration provisions as currently drafted appear to capture a number of arrangements where its provision is not from an employee’s direct legal employer (third party), for example another company within the same group as the employer.
As part of the consultation process that commenced on 9th December 2010 with the publishing of the draft provisions, HM Revenue & Customs (HMRC) produced their first Frequently Asked Questions (FAQs) yesterday (21st February 2011). They are intended to provide greater clarity on what will and will be not caught under the provisions following amendments to the draft. The introduction to the FAQs and the answers provided make it clear that any amendments will be drafted to ensure that arrangements which seek to avoid tax will still fall within the provisions.
Below is a summary of the issues the FAQs cover on third parties that impact fleet providers:
Company Cars The FAQs state that the normal provision of a company car for private use through a standard lease will not be caught, unless the employee has the capacity to benefit from the car as if they were the outright owner. The examples of benefiting as an owner are the ability to influence the sale or replacement of the car, or the ability to benefit from the proceeds of selling the car.
Salary Sacrifice The FAQs confirm that, generally, HMRC do not see salary sacrifice for exempt or tax advantaged benefits as tax avoidance. However, the FAQs do not rule out the possibility that particular salary sacrifice arrangements could involve tax avoidance.
ECO Schemes ECOS allow employers to support employees to acquire a car without giving rise to the company car and fuel benefit tax and NI charges. The majority involve the provision of a loan to an employee. ECOS loans are not always provided by the employee’s direct employer. It is possible the amendments to remove third party loans from the scope of the legislation may not apply if ECOS are deemed to be “avoiding” the income tax and employer NIC that would be due on the company car and fuel benefit if the car were provided by the employer. The FAQs have not clarified directly how ECOS loans should be dealt with.
Source/Reference - Mike Moore, Director | Global Employer Services Deloitte LLP, 2 New Street Square, London, EC4A 3BZ, United Kingdom