On account of the growing uncertainty surrounding salary sacrifice, there has been a spike in interest among employers looking to set-up affinity car schemes according to providers like Alphabet.
However, any fleet choosing an affinity scheme to give members of staff access to cars should take the necessary precautions to ensure HM Revenue and Customs (HMRC) do not see them as company cars that will attract Benefit-in-Kind (BIK) taxation.
The advantages of affinity schemes
With an affinity scheme, employers can offer a vehicle through finance to employees at a discount rate, which the leasing company will negotiate. Therefore, employees don’t need to put down a deposit, will get a competitive APR rate, and are protected from residual risks thanks to a guaranteed future value at the end of the finance agreement.
Another reason why fleets are exploring this option is because the Chancellor of the Exchequer George Osborne raised concerns about the continued growth of salary sacrifice in his recent budget. However, he did not make a decision on whether car schemes would be allowed to continue.
Warnings about tax implications of affinity schemes
“If the scheme is promoted or supported by the employer and unless ownership of the car transfers at the outset to the employee, the HMRC is likely to view it as a company car scheme,” says Alastair Kendrick, director at MHA MacIntyre Hudson.
“We have seen lessors suggesting that what they are offering is not by reason of employment and therefore it is not necessary to transfer title – so a personal contract hire or personal contract purchase works. This, from experience, is not the view of HMRC and employers do not fully understand the risks.”
How to avoid a substantial tax bill
As opposed to PCP (Personal Contract Purchase) or PCH (Personal Contract Hire), funding for an affinity scheme should come through a credit sale agreement, which is where the employees buy the vehicle at the cash price and make repayment instalments until the whole amount has been settled.
“The correct way to go about an affinity scheme is through a credit sale agreement,” says Jon Burdekin, Alphabet head of product management. “It means the provider is selling to the individual, a little bit like a mortgage for a car. It’s not a lease and, although it looks like a company car, it isn’t. If the employee owns the car, it cannot be deemed to be a company car and so it does not attract BIK.”