Salary sacrifice car schemes – consumer rights warning

Okell

For clarity, are those posters saying the CRA does not apply to the agreement for the "supply" of a car between the employer and the employee because:

(1) the employer does not satisfy the definition of a trader* under s2(2); and/or

(2) the agreement is not of a type specified in s3; and/or

(3) some other reason?

I'm not suggesting the CRA does apply, I'm curious several posters are definite that it doesn't


Whether or not the CRA applies it still seems to me that the OP's complaint is with his employer.  And I'm not sure I understand what the FOS can do...


* What if the employer is in the business of supplying cars?

Grumpy_chap

Okell said:

* What if the employer is in the business of supplying cars?

I still cannot see that it would make any difference.

Let's consider a Car Sales Representative working for a Car Dealer.

If the Car Sales Representative sells that car to a Consumer, then the Consumer has consumer rights for the purchase from the Car Dealer.

It is common that a Car Dealer provides the Car Sales Representative with the use of a car, and this is part of the salary and reward package.  The use of the car is subject to BiK in the same way as for any Employee of any company.  The salary and reward package might also include pension contributions, healthcare or whatever.  However, that use of the car by the Car Sales Representative (even as part of the salary and reward package) does not create a consumer relationship between the Car Sales Representative and the Car Dealer - that relationship remains one of Employee - Employer.

The fact the Car Sales Representative is an Employee of the Car Dealer does not of itself preclude a Consumer relationship from existing at the same time as the Employee - Employer relationship exists.  I just do not consider that the use of the car within the salary and reward package creates this Consumer relationship.  The Consumer relationship would be created if the Car Sales Representative used their post-tax income to purchase a car from the Car Dealer.

A_Geordie

Grumpy_chap said:

A_Geordie said:

I've seen this before. Arval are correct because their contract is with the employer, not yourself. However, the contract you've entered into with your employer is likely to be subject to the Consumer Rights Act with respect to the car. 

I don't believe that to be the case, but would be perfectly happy if you can enlighten me with an actual reference that backs up CRA applying to a company car.

We have the following scenarios to consider:

A - OP earns a salary, say £40k.

B - OP earns a salary, say £35k plus company car.

I fail to see where the consumer rights fit into either salary package above.

What I say is all theoretical because I am yet to see it tested in court but in its simplest form, the argument goes as follows: 

• The employer falls within the definition of a "Trader" under the CRA, which describes them as a person acting for purposes relating to that person's trade, business, craft or profession, whether acting personally or through another person acting in the trader's name or on the trader's behalf. 

• By definition a consumer under the CRA is an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession. Just because the individual is an employee, does not mean they can never be a consumer, unless the CRA explicitly states as much (see below on this point). 

• Section 3(1) & (2) of the CRA (goods contracts that are covered under the CRA) says that the CRA applies too contracts between a trader and a consumer; and it applies to a contract for the hire of goods. Unlike section 48(2) which confirms that services contracts are not covered under an apprentice or contract of employment, the same exclusion does not appear in section 3 for goods contracts. 

• A hire contract is broadly defined in section 6 as a contract is for the hire of goods if under it the trader gives or agrees to give the consumer possession of the goods with the right to use them, subject to the terms of the contract, for a period determined in accordance with the contract.   

Tying all of the above together, the employer is engaged in the business of offering vehicles to its employees under a scheme whereby the employee hires the car in return for a proportion of their salary (pretty sure the employer gains some tax benefits as well which is partly or wholly the reason why employers offer this, though I am no tax expert). That involves some kind of contractual arrangement, usually in the form of an variation to the employees contract that confirms this position.

Therefore, the employment contract no longer becomes a simple contract of services, but also a supply of goods from the employer to the employee insofar as the SS for the car is concerned i.e. a mixed contract for goods and services. In all the SS schemes I have signed up to, the car is used purely for personal reasons and not restricted to business or other work related use, which is different to being given a company car as part of your employment perks since that is normally restricted to business related purposes. Because of this, I am of the opinion that the employer meets the definition of trader and the employee meets the definition of a consumer since the car is used mainly outside of their trade, business, craft or profession. 

The overall arrangement in essence is that it is a contract for hire and the terms are such that the arrangement is for the employee's salary to be reduced for an agreed period of time, or earlier if the employee leaves the employer at which point the car is returne.  The CRA explicitly excluded an individual's rights regarding services under an employment contract but not in relation to goods, and that could suggest that parliament had intended for there to be a situation where an employer-employee contract for goods would be subject to the CRA, otherwise parliament could have simply included the same exemption under section 48(2) - but it didn't, and that has to mean something. 

The taxes related to the scheme are, in my opinion, irrelevant to the fact that the employer has hired the goods out to the employee.

Grumpy_chap

A_Geordie said:

the employer has hired the goods out to the employee.

Has the employer hired out the goods to the employee though?
I am not convinced that contractual situation has arisen.

It seems clear to me for the rules around SS:
https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

• There must be a change to the employment contract.
• There cannot be the freedom for the employee to swap in and out of the SS scheme at will.

This is very substantially different from a consumer contract to hire the goods.  With the SS car, there may not even be the option to opt out once the lease term expires.

Further, let's consider:

A - OP earns a salary, say £40k.

B - OP earns a salary, say £35k plus company car.  Staying with the same employer as A, the change is via SS and irreversible change to employment contract (as per the rules for SS).

C - OP leaves employer (1) and joins a new employer (2) with the salary £35k plus company car.  This is not via SS as employer (2) just offers the company car to all employees.

The consumer rights argument would afford the individual changing from A to B some consumer rights but not the individual changing from A to C.  That seems wholly illogical.

born_again

Tis is just the same as the "Cycle Scheme" 

Wonder how many don'r realise that if they lose their jobs. That the car goes back.

A_Geordie

Grumpy_chap said:

A_Geordie said:

the employer has hired the goods out to the employee.

Has the employer hired out the goods to the employee though?
I am not convinced that contractual situation has arisen.

It seems clear to me for the rules around SS:
https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

• There must be a change to the employment contract.
• There cannot be the freedom for the employee to swap in and out of the SS scheme at will.

I currently have a car through SS and the varied terms state that my salary is reduced by X for a period of X years which is the length of time I have the car for and when that term expires, I return the car. I am not allowed to hand the car back or vary the terms during that period without incurring a penalty, unless there are certain trigger events that occur such as when I am made redundant, in which case the variation is terminated and I am to return the car penalty-free. 

If the goods are not hired out, then what woud you call that arrangement? The arrangement of the car meets the criteria for the definition of a hiring under the CRA. Cannot see how it can be determined as something else but open to other suggestions. The fact that the car is a BIK does not alter my view that the employer is still supplying goods to the employee on terms dictated by the employer via a variation agreement. 

Jenni_D

When is a company car not a company car? I may be wrong, but .. I thought the whole point of paying BIK tax was because a company car could be used for personal purposes; if the car can only be used for company purposes then I don't believe that BIK tax is levied. (In that case it's just like the company assigning someone a pool car for company usage - including commuting).

PS - I realise that this is a slight drift from the thrust of this thread. I just wanted to address some replies to my previous comment.  

MattMattMattUK

Jenni_D said:

When is a company car not a company car? I may be wrong, but .. I thought the whole point of paying BIK tax was because a company car could be used for personal purposes; if the car can only be used for company purposes then I don't believe that BIK tax is levied. (In that case it's just like the company assigning someone a pool car for company usage - including commuting).

PS - I realise that this is a slight drift from the thrust of this thread. I just wanted to address some replies to my previous comment.  

If an employee is allowed to use a pool car for commuting then shouldn't BiK be applied to the benefit gained from the commuting part as commuting is not business use?

mybestattempt

Jenni_D said:

When is a company car not a company car? I may be wrong, but .. I thought the whole point of paying BIK tax was because a company car could be used for personal purposes; if the car can only be used for company purposes then I don't believe that BIK tax is levied. (In that case it's just like the company assigning someone a pool car for company usage - including commuting).

PS - I realise that this is a slight drift from the thrust of this thread. I just wanted to address some replies to my previous comment.  

If by commuting you mean travel between home and place of work that is private, not business, travel.


You may find these links useful to understand car benefit and what is a pool car.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim23020

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim23450

Okell

Why is the tax status of the car's use relevant to the question whether the agreement between the employer and the employee is covered by the CRA?

A_Geordie has explained why he thinks it might be caught by the CRA, but nobody has explained why it wouldn't be.

Again:

Okell said:

For clarity, are those posters saying the CRA does not apply to the agreement for the "supply" of a car between the employer and the employee because:

(1) the employer does not satisfy the definition of a trader under s2(2); and/or

(2) the agreement is not of a type specified in s3; and/or

(3) some other reason?

I'm not suggesting the CRA does apply, I'm curious several posters are definite that it doesn't...