Car / Salary Sacrifice

[Marcus1970]

Hi

brand new to the forum today....

My wife leases a car via her employer (Local Authority) through a salary sacrifice scheme. basically paying around £300 per month for the car which is paid before Tax & NI

Her employer have set her up to pay 'company car tax' as such she is paying tax using the same mechanism (co2 emmissions formula etc) as I do when my company car is provided as a taxable benefit.

doesn't sound correct - can someone advise please

Regards
Mark

[bd6759]

The car is provided by her employer, therefore it is a benefit.

[Marcus1970]

it's provided through her emplyer.... but she pays the full lease value for it, the tax she is paying far outweighs the tax she is saving ?

Can't be right..... the car itself is not a benefit as per my company car for example

[bd6759]

She doesnt pay the lease cost.

She has given up part of her taxable income (£300 per month) in exchange for a different type of taxable income - a car.

[LozaACCS]

I expect that your beef is that you have a BIK but do not have to pay anything towards the provision of the benefit.
Your wife pays the full cost of providing a car but is then taxed on it, yes that does seem pretty unfair.
The difficulty here is the somewhat peculiar way in which tax law orders the calculation of the benefit and its relevance to salary sacrifice arrangements.
The tax law in question is S121 ITEPA 2003, this states how the benefit should be calculated.
Step 3 allows for the deduction of capital contributions by the employee and step 8 allows for revenue type deductions by the employee.
So my view would be that if your wife contributed taxed income to the benefit then that reduces the taxable benefit possibly to nil.
The salary sacrifice however is a legal agreement between your wife and the employer to exchange salary (so saving class 1 NI) in exchange for a BIK which then takes you back to S121, the deduction is then however not in my view allowable because of the separate legal nature of the salary sacrifice arrangement, in other words you cannot use untaxed income to reduce the benefit, the inference is I hope clear.

[bd6759]

Your wife pays the full cost of providing a car but is then taxed on it, yes that does seem pretty unfair.

It is perfectly fair. She does not pay anything towards the car. She has the choice to receive either £300 salary or a car. Whichever she chooses, she gets taxed on it. If she did not get taxed on the car, she would effectivley be getting tax relief on the cost of the car. Wouldn't we all like that?

[LozaACCS]

Whether something is fair or unfair is a subjective matter.
In this post we have 2 people who may earn the same salary, have the same car benefit but face the anomaly (to them at least) that one pays £300 per month to be in much the same position as the one who does not.(the excess of contribution over tax is clearly stated), I am surprised that you are unable to recognise this anomaly, your efforts at explaining the situation are not helpful.
As tax advisers our professional standing and qualifications demand that we be objective, I have noted the legislation concerned and my view of its impact on the situation of the OP, and how a different structure might provide a very different solution.
You on the other hand have quoted no legislation, nor have you challenged the interpretation of the legislation I have quoted, on what grounds do you believe this to be incorrect.
Are we to accept that the OP or his wife should just shut up and pay up because it is in your opinion that they should do so.

[bd6759]

Not sure what legislation you would like me to quote, although for completeness s119 sets out that it is the cash equivalent that is taxed and no other provision apply. This removes the "money's worth" principle established in Heaton v Bell.
Your analysis of the tax position is quite correct. Our disagreement is whether it is fair that an employee is taxed on the car provided by her employer. It would be different if she paid a capital contrinution or made a payment for the private use, but she is doing neither. She has given up £300 of her salary. That means she has no right to it, it is not hers anymore. It cannot be a contribution because it is not hers to contribute. That is not tax law, it is Common Law.
If two people earn the same, they would be in the same position. If one person earns £300 less, they are in a different position.
I am being quite objective when I say that a person who receives a car from their employer is taxed on it, irrespective of how much salary they have negotiated.