E-cars in demand

Motorists use salary sacrifice to help beat LEZ fines

electric vehicle charging point
Demand for electric vehicles has risen since the LEZ was introduced

Glasgow’s tough low emission zone (LEZ) penalties are driving motorists to take up tax-efficient salary sacrifice schemes that enable employees to purchase electric cars, according to an accountancy firm.

Penalties for breaching the LEZ regulations start at £60 rising to up to £480 for cars and light goods vehicles and £960 for buses and HGVs. 

Nearly 150 vehicles a day are falling foul of the new LEZ penalty system. 

Mark Pryce, a business tax partner with Azets, and a specialist in employee benefits, said that demand for salary sacrifice schemes had soared just one month after the new LEZ was launched.

“Salary sacrifice schemes are a highly tax-efficient and cost-effective way of providing employees with access to electric cars that might otherwise be far more expensive purchase or lease,” he said.

“E-cars are LEZ-compliant so also provide employees with the freedom to commute and travel on business within a LEZ area, which is a key attraction for businesses that rely on their staff travelling into the city centre.”

For those drivers that continue to incur penalty charges, Mr Pryce warned against making claims on their expenses.

“Expense claims for LEZ penalty charges will be considered by HMRC as additional taxable income.  The cost of driving to and from the workplace is a personal expense and any payment of that cost, including penalty charges, is a taxable benefit.  The employee would therefore be liable for tax at their marginal rate plus additional national insurance costs.”

Mark Pryce, Azets Glasgow

He added: “LEZ penalties are also not a valid deduction for corporation tax, so the cost implications of paying the penalties is significant for both the employee and the employer. 

“We would encourage businesses to ensure that they have clear guidelines and to be alert to any expenses claims for LEZ penalties. Employees can be reimbursed for genuine business travel but the rollout of the LEZ zones across Scotland further emphasises the need for businesses to think very carefully about the distinction between business and private travel.”

Mr Pryce urged businesses concerned about the impact of LEZ and interested in salary sacrifice schemes to seek professional advice.

“It is vital that employers first seek professional advice on employee travel matters in relation to the new LEZ and how it is impacting on employee expenses, taxes and employee travel patterns. Salary sacrifice schemes also need careful consideration, but the demand triggered by the penalty charges suggests that many more businesses will go down this route.”

Azets also highlighted increased HMRC scrutiny on motoring costs with tax geared penalties on errors being found in a large proportion of cases, leading to an increased risk of tax penalties on top of LEZ penalties.

New data has also emerged showing that Glasgow City Council spent almost £100,000 to hire vehicles to replace parts of its fleet that do not comply with the LEZ.

In response to a freedom of information request, the council said that between 12 June and 14 July it had spent £95,344 hiring 131 vehicles to cover fleet vehicles that do not meet LEZ standards.

This included two eight-tonne DAF trucks, a Skyking cherry picker, a Mercedes refrigeration van, 52 Ford Transit vans and 22 Vauxhall Corsa cars.

The SNP-run council said the cost was mitigated by taking older vehicles out of service. The Tories said the rental outlay was “farcical”.

About salary sacrifice

Salary sacrifice schemes allow employees to give up an element of their ordinary contracted gross pay in exchange for the provision of a qualifying non-cash benefit.

While specific tax legislation (the Optional Renumeration Arrangements (‘OpRA’) rules) removed the tax benefits for most salary sacrifice arrangements, Ultra Low Emissions Vehicles (ULEVs) emitting less than 75g/km of CO2 were carved out of these changes and can still be provided tax efficiently under salary sacrifice.

Vehicles falling into this category include BMW X5 xDrive45e, Kia e-Niro, Toyota RAV4 PHEV, and Tesla models.

Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.