Previously, the drivers of low emission or ultra-low emission company cars obtained through the salary sacrifice scheme received special tax advantages. These tax advantages will disappear according to Chancellor of the Exchequer Philip Hammond’s Autumn Statement. Employees with a company car will need to pay more income tax on the value of the company car and CO2 emissions.

The benefit-in-kind company car tax rates have been set by the CO2 emissions and list price of the car. The tax rate also varied based on the type of fuel the car uses. Drivers who used company cars that used petrol and were among the least polluting cars were given a considerable tax break, only paying 7% or 11%. (1 ) Chancellor Hammond is changing that low percentage to a minimum of a 20% tax.

The company car tax advantages are not the only ones on the chopping block. Several salary sacrifice tax breaks will end in April 2017. A few of these tax breaks will continue such as the Cycle to Work scheme and childcare benefits.(2)


The salary sacrifice scheme allows businesses to give employees non-cash incentives rather than paying a higher salary. Businesses may provide a variety of benefits as part of the salary sacrifice scheme. Company cars are only one possibility. Some companies give vouchers for child care, mobile phones, pension contributions, or gym memberships.

Businesses opt to give non-cash benefits as a way to decrease their tax obligations and pay less into National Insurance. Employees also have benefited from paying less tax on non-cash benefits than they would for monetary wages.


Since cars have been taxed based on CO2 emissions, the rise in popularity of low emissions and ultra-low emissions has meant a decrease in tax revenue. (1) Low-emission cars are especially popular choices for company cars.

Chancellor Phillip Hammond says the salary sacrifice tax scheme has been unfair. (3) The salary sacrifice has lost a significant amount of revenue for the Treasury. (3) Some companies have initiated salary sacrifice benefits instead of wage increases for their employees. (1) Hammond said that scrapping the salary sacrifice schemes will mean the employers and employees who have used the policy to avoid taxes will have to start paying their fair share. (4) The changes to the salary sacrifice tax rates is expected to raise £1 billion over the next six years. (3)


The good news is that not everyone will face a higher tax. Those who have an ultra-low emissions car are excepted from the tax hike. Though low-emissions vehicles have been a favorite for company cars, companies might be inclined to switch to cars with even lower CO2 emissions to keep the lower tax rate for employees. Only time will tell if these tax changes encourage businesses to seek the company cars with zero or ultra-low emissions.


On 1 April 2017, the Vehicle Excise Duty will increase. Like with the salary sacrifice scheme tax changes, the ultra-low emissions vehicles also are exempt from the increase in this road tax. (5) The tax increase affects drivers who buy a car on 1 April 2017 or later. People who buy cars before that date will continue to follow the current Vehicle Excise Duty rate.


The new tax rates for company cars will be in line with the current tax brackets. The proposed tax system will follow the marginal income tax thresholds of 20%, 40%, and 45%. (3) The system is much simpler than the current salary sacrifice rates. The salary sacrifice tax rates that has been in use includes 25 different rates for petrol cars and 22 rates for diesel cars. (3)

Drivers of company cars classified as low-emission vehicles have had the greatest tax advantages. They will face the biggest increases in the amount of tax owed. (1) A driver of a low-emissions company car may have only been responsible for 7% under the current salary sacrifice scheme. This means that a 40% tax payer would pay 40% of the 7% tax which would be about £980 on a car costing £35,000. (1) With the changes to the loss of the salary sacrifice tax break, drivers of the same car would need to pay about £2,800 annually. (1) That means paying almost 3 times more in taxes for the same car.

While employees will need to start paying more income tax, the use of company cars in lieu of increased salary will still save money on a lower National Insurance contribution for the employee. (3) However, the increases in taxes for both employers and employees make company cars much less attractive.



1 "Company Car Drivers Facing Significant Tax Hike". Carbuyer. N. p., 2016. Web. 3 Dec. 2016. 

2 "What Is A Salary Sacrifice Scheme?". N. p., 2016. Web. 6 Dec. 2016.

3 Brodbeck, Sam and Laura Suter. "Autumn Statement: Which Employee Perks Will Lose Their Tax Breaks?". The Telegraph. N. p., 2016. Web. 6 Dec. 2016.

4 Andrews, James. "Employee Perks To Cost You FAR More As Salary Sacrifice Scrapped ". Mirror. N. p., 2016. Web. 6 Dec. 2016.

5 Goodlad, Tom. "New Road Tax: Vehicle Excise Duty (VED) To Soar In 2017". Carbuyer. N. p., 2016. Web. 7 Dec. 2016.