Company Car Drivers Could Pay National Insurance On Benefits
Report Calls For Overhaul Of Tax System
The Office of Tax Simplification has suggested that employees should pay National Insurance Contributions on company cars and private fuel benefits, Fleet News has reported. The Office has, therefore, called for further research to consider the advantages and disadvantages of applying Class 1 Contributions to all employee remuneration – whether cash or benefits – as part of a review of the tax and National Insurance systems in the United Kingdom. As things stand, benefits tend to be subject to Class 1A National Insurance Contributions which come from employers and is paid at 13.8% after the year end. This could be merged with Class 1 Contributions as paid by employers and employees. An alternative - the Office of Tax Simplification has said - is “to abolish Class 1 and Class 1A on employee benefits” and replace them with an “employer tax on cash and benefits which applies consistently”. The Australian Fringe Benefits Tax could provide the model. If there is a significant change – and this would take some time to implement – any initiative might reduce the popularity of Salary Sacrifice Schemes (depending on the specifics). These encourage employees to give-up part of their salary for benefits such as a company car. This minimises cash income which reduces tax liability.
Review Of Employee Benefits and Expenses Report Findings
The Office of Tax Simplification – which has published a report titled Review of Employee Benefits and Expenses – proposes to further explore the case: “for applying Class 1 National Insurance Contributions to all employee remuneration (whether cash or benefits in kind)”. The report adds: “At the moment, having a separate Class 1A is seen by many people as distorting, unfair, and administratively complex” and that “it is questionable whether different treatments of types of reward by the tax system is appropriate”. The report, however, claims that: “a change would have an impact on the amount of National Insurance Contributions some employees pay” and this could increase Government revenue from this source. As such: “work needs to be done on determining the real impact on employees and how the basis for compensating adjustments could be made”. Options include reducing National Insurance Rates. Furthermore, the report stresses that its contributors: “liaised closely with HM Treasury and HMRC to discuss if what we are proposing is politically, financially and operationally feasible” - and that they will: “continue to liaise” with these bodies to see how the recommendations have progressed”.