HMRC has published a policy paper including changes to Optional Remuneration Arrangements (OpRA) rules for taxable cars and vans.
An oversight in the Finance Act 2017, meant that no provision was made to ensure the calculation of the amount foregone for a taxable car or van should also include any connected costs.
This meant the value of connected costs were not included in the calculation of the amount foregone, whereas they were deemed to be included within the modified cash equivalent rules, so that the comparison was not on a like-for-like basis.
Under the normal rules for calculating the car benefit charge, capital contributions are automatically subject to pro-rata if the car is made available for only part of a tax year.
Similar provisions were not included in the Finance Act 2017, for calculating the relevant amount. This means that currently, the amount deductible for capital contributions where the car is available only for a part year is overstated.
HM Treasury and HMRC were made aware of these anomalies following the introduction of the Finance Bill 2017 and the decision was made to restore the intended legislative position.
HMRC said this is the first opportunity that the government has had to make the amendments required, but it will now ensure the OpRA rules work as were intended.
It will ensure that the value of the amount foregone includes any amounts given up in respect of connected costs.
Alastair Kendrick, an employment tax specialist, said: “From April 2019 the cash alternative must reflect the total cost so items like insurance, maintenance and fleet management.
“Taking these costs into account is likely to impact on the viability of the schemes and many who entered these arrangements after April 2017 - they will find themselves paying a significantly increased tax bill. It may be some employees wish to exit the arrangement but the early termination costs could be significant.”
The draft legislation was published for consultation on 6 July 2018, but the measure will be will be introduced in the Finance Bill 2018/19 and have effect from 6 April 2019.