Salary sacrifice car schemes – consumer rights warning

Grumpy_chap

Okell said:

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...

I answered that direct quote of yours that you re-quoted.

I think it is not caught by the CRA because it is not being purchased / hired by the employee but is being provided to the employee as part of the salary and reward package.

Let's consider an individual with two job offers from company A and company B.

Company A offers a basic salary of £50k but other than that offers only statutory obligations for annual leave (5.6 weeks), sickness (SSP), pension (3% and 5%).

Company B offers a basic salary of £40k plus 6.6 weeks annual leave, enhanced sickness pay at full pay for 6 months, enhanced pension (10% and 5%), healthcare for family, dental plan, company car, fuel (or electricity) card, gym membership, cycle-to-work scheme, Christmas turkey.

If the CRA is deemed to apply to the company car offered by Company B, then the CRA would logically apply to the healthcare, dental plan, fuel card, gym membership, cycle-to-work scheme and the Christmas turkey.
Afterall, the employee has chosen to work at Company B with the lower salary in return for all these items rather than taking the job at Company A.

Okell

OK.  I wasn't sure you had answered it previously but - if I understand you correctly now - you are saying it simply forms part of the employee's remuneration package*.

Fair enough, I can see that, but does that mean it's not caught by the CRA?

Couldn't the agreement (or the part of the agreement relating to the car) still fall within the definition of a hire contract in s5(1)? 

 "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."



* I'm not certain that whether the employee pays for the use of the vehicle by making a payment or by foregoing part of their salary makes a difference.  Can't they both be consideration?



NB - I haven't got a dog in this race either way.  I'm just interested that the answer isn't clear.  And whether the OP has any CRA rights against his employer

Jenni_D

Okell said:

OK.  I wasn't sure you had answered it previously but - if I understand you correctly now - you are saying it simply forms part of the employee's remuneration package*.

Fair enough, I can see that, but does that mean it's not caught by the CRA?

Couldn't the agreement (or the part of the agreement relating to the car) still fall within the definition of a hire contract in s5(1)? 

 "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."



* I'm not certain that whether the employee pays for the use of the vehicle by making a payment or by foregoing part of their salary makes a difference.  Can't they both be consideration?



NB - I haven't got a dog in this race either way.  I'm just interested that the answer isn't clear.  And whether the OP has any CRA rights against his employer

I understand your thinking here - and as per yourself I don't know if it's a valid understanding. However, even if it is, the "trader" in this case would be the employer not the hire/lease company.

Grumpy_chap

Okell said:

OK.  I wasn't sure you had answered it previously but - if I understand you correctly now - you are saying it simply forms part of the employee's remuneration package*.

Yes.
That is how I understand it.
I do not believe it is a hire and therefore affording consumer rights to the individual.

I gave an example upthread of how being an employee does not mean you can never have consumer rights on an item acquired from the employer.  The difference I used was a Car Sales Representative having the use of a car as part of their remuneration package (not consumer) versus the same Car Sales Representative buying a car for family use and happening to buy from his employer the Car Dealer (consumer).

Grumpy_chap said:

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.

I can give another example:
An individual works for a High Street electronic goods retailer and, in the course of their employment, is provided with a laptop which can also be used for personal purposes.  Not a consumer.
The same individual buys a top of the range gaming laptop from the same High Street electronic goods retailer.  Consumer.


I also think, given the high number of online articles about SS car schemes, if consumer rights applied at least some of the articles would comment on that and the mechanism for resolving any issues.

In fact, from a practical perspective, the ability of an individual with the weight of a company behind them probably makes it far easier to get any issues resolved than an individual as a consumer. 
I know when I worked for a company and they had the first Vauxhall Vectra's, there was some issue so gear boxes were failing after around 14k miles.  The first few went through and paid for repairs.  As the number of cases grew, the Fleet Manager got involved and simply wrote to Vauxhall instructing them to resolve the issue or have Vauxhall taken off the fleet list.  The response was practically instant and the resolution positive.
Any individual saying "I'll bever buy another Vauxhall (or Mercedes in the OP's case) will be just met with a shrug.

This all really rather makes me wonder whether there is more to the OP's case than they are letting on.  Has the OP even raised it as a query with the employer?

Sullypants said:

Just wanted to share my experience as I think it exposes a serious gap that could affect anyone using a salary sacrifice car scheme.

I got a brand new Mercedes EQB in June 2025 via my employer’s salary sacrifice scheme (through Arval UK). Within 3 days, I reported major suspension issues. After 5 failed repair attempts and over 15 days in workshops, the fault still isn’t fixed.

When I rejected the car, Arval refused. Their legal team even told me:

• Consumer law doesn’t apply because the contract is technically between them and my employer.

• The Ombudsman has no jurisdiction.

• Scots law doesn’t apply because the contract specifies English law.

All of this is completely wrong. I’m the one paying (through salary deductions) and the car is for my personal/family use only. The Financial Ombudsman Service has now accepted my case.

The bigger issue:

Salary sacrifice schemes are growing fast, but providers seem to be exploiting technicalities to deny employees their consumer rights. Many people would be misled by what I was told and simply give up.

If you’re in a salary sacrifice scheme, please be aware: you do have consumer rights, and the Ombudsman can take your case.

If anyone is going through something similar please share your thoughts or experience. Also anyone needing any help regarding this, I’ll do my best to help. 

It will be interesting to see how the OP updates when the Financial Ombudsman reports back and the outcome.  I remain very surprised that the Financial Ombudsman has taken a consumer case where the individual has not entered into a finance agreement.

A_Geordie

Grumpy_chap said:

I think it is not caught by the CRA because it is not being purchased / hired by the employee but is being provided to the employee as part of the salary and reward package.

Can you explain why cycle to work schemes, which fall under the salary sacrifice agreements are deemed to be hire agreements that are subject to the Consumer Credit Act 1974? According to your argument, cycle to work schemes would not be hired by the employee because they are part of a reward package. Yet the Financial Conduct Authority and HMRC in particular seem to have a different viewpoint to you. The cycle to work scheme is not materially different to the present case

Just because something might be seen as a reward offered by the employer, does not exempt that reward from being subject to the CRA or other consumer protection legislation, which is where I'm struggling to understand your point because I haven't found anything as such to confirm this in respect of goods and you haven't given anything to support that, aside from your own opinion.

Grumpy_chap said:

If the CRA is deemed to apply to the company car offered by Company B, then the CRA would logically apply to the healthcare, dental plan, fuel card, gym membership, cycle-to-work scheme and the Christmas turkey.

All of the above descriptions would depend on whether the contractual agreements are between the employee and the employer or, between the employee and the provider of those services with the employer simply being the facilitator/agent. 

Assuming the contractual agreement is employer/employee then: 

1. Healthcare/dental plan treatment would be classed as a service and therefore exempt under s48(2) of the CRA as it forms part of the employment contract. Implants, fillings, dentures and the like are arguably goods so the CRA could apply.

2. Fuel card will depend, but generally yes if there is an issue with the supply of fuel and is related to the fuel card.

3. Cycle to work, yes as per my explanation above. 

4. Christmas turkey would be a perishable good but yes, subject to the CRA. 

As I mentioned in an earlier post, the CRA explicitly excludes an employee from relying on service related protections under the CRA (and in fact that extends to unfair contract terms under section 61) but the same doesn't extend to goods. The question is, why did they do that? My guess is that parliament intended for service related matters to be governed under employment legislation as opposed to the CRA since it is typically a service type contract whereas you don't employ people to supply goods to them. 

It seems to me you are referring to the employee hiring the car in the normal sense i.e. it is rented/leased/loaned in return for rental payments or something of that kind. The thing is that the definition of a hire contract under the CRA makes no mention of any of that. It is so broadly defined that the criteria only requires the employer to (a) give possession to the employee (b) a right to use the goods (c) possession and use of the goods must be subject to a contract and (d) for a period determined in that contract.

The definition does not exclude an employment contract for the purposes of (c) and (d). Therefore it is up to the employer to have a separate contract or incorporate the contract into the employment contract, but by dong so, the employment contract not longer becomes just a contract of service since there is now a supply of goods by the employer to the employee, thus triggering the CRA provisions.

Grumpy_chap

A_Geordie said: 

As I mentioned in an earlier post, the CRA explicitly excludes an employee from relying on service related protections under the CRA (and in fact that extends to unfair contract terms under section 61) but the same doesn't extend to goods. 

there is now a supply of goods by the employer to the employee. 

In the case of a company car, I'd not consider there is a supply of goods.
There is the access to the use of the car for a period of time.  That is a service.
There are very specific rules in place that prevent the car being subsequently purchased directly by the employee, as to do so would create complex taxation and VAT liabilities.
It is why no "guaranteed minimum future value" (or "balloon payment") can be advised on the car scheme at the outset.

That is different to cycle to work where the scheme envisages from the outset that the individual will eventually become the owner of the bicycle.  "End of scheme"
https://www.halfords.com/cycling/expert-advice/cycle2work.html

A_Geordie

balloon payments and guaranteed future value amounts are found in hire purchase agreements, which is a specific option to purchase in the contract terms, unlike a hire agreement which provides no option to purchase, other than rentals payments.

Nonetheless, I have just reviewed my SS agreement and found this: 



Seems to contradict your point about having no ability to purchase? C2W schemes are hire agreements and not a hire-purchase so there can't be any envisaging that the consumer will purchase at the end of the term, but at the end of the agreement the supplier can offer to sell the bike ,similar to the above clause I have in my agreement.

Also just on your other post, I did come across this 2014 article which seems to support my view, as opposed to yours, though I can't find anything else after this. 

Consumer Rights Bill to impact salary sacrifice benefits | Article | Employee Benefits

This particular quote seems to make the poiint: 

It is a difficult piece of legislation drafting and I did not get a very clear answer but my understanding is that the contract of employment itself is exempt so those services which are provided to employees and funded by their employer are not subject to the CRB.That is, core employer-funded benefits.

However where the employee funds the benefit they are acting as a consumer and the CRB applies.

So if an employee voluntarily takes travel insurance through flexible benefits the requirements are the same as if they bought that insurance privately over the web.

That is my understanding from reading the CRB and my discussions with government representatives.

Grumpy_chap

A_Geordie said:

Nonetheless, I have just reviewed my SS agreement and found this: 



Seems to contradict your point about having no ability to purchase? 

I don't think it does contradict what I said:

Grumpy_chap said:

It is why no "guaranteed minimum future value" (or "balloon payment") can be advised on the car scheme at the outset.

There are very specific tax rules about the company car (SS car) and what happens at the end of the lease period.

Note lease, not hire purchase (which a PCP would be).
The very important thing in the clause you quoted is "may" be able to purchase, not "will" be able to purchase.  Plus, the purchase price will be provided at that time.
The rules do not permit a purchase price to be advised at the outset of the agreement.

This is a requirement to comply with the tax rules and there would be significant VAT implications if the scheme were devised with the intent / structure to facilitate easy purchase of the car at the end of the lease period.  So much so, it would make SS unviable (if, indeed, it ever is viable once the hidden costs are considered).


The car is very different to a cycle to work bicycle which assumes that the bicycle is hired until such time as it has zero residual value and can then transfer ownership at £zero (or "notional £1").  It is the "zero" valuation that overcomes the tax issues that would otherwise apply.

No-one is going to lease a car until such time as the residual value is as low as "zero".
In fact, does the residual value of a car ever reach "zero" value given the residual scrap value that there will always be embedded in the vehicle?

Grumpy_chap

A_Geordie said:

Also just on your other post, I did come across this 2014 article which seems to support my view, as opposed to yours, though I can't find anything else after this. 

Consumer Rights Bill to impact salary sacrifice benefits | Article | Employee Benefits

This particular quote seems to make the poiint: 

It is a difficult piece of legislation drafting and I did not get a very clear answer but my understanding is that the contract of employment itself is exempt so those services which are provided to employees and funded by their employer are not subject to the CRB.That is, core employer-funded benefits.

However where the employee funds the benefit they are acting as a consumer and the CRB applies.

So if an employee voluntarily takes travel insurance through flexible benefits the requirements are the same as if they bought that insurance privately over the web.

That is my understanding from reading the CRB and my discussions with government representatives.

I just read that article and I am not sure how much weight can be given to it.

It is written in the future tense in June 2014 before CRA completed passage through parliament (indeed, before final text was agreed, 2nd reading apparently scheduled for 1st July 2014).
As you acknowledge, there seems to be nothing later than this.
One has to assume if the final outcome was favourable to the view expressed in the article (CRA applies) then the authors would have updated the article and run further articles with a triumphant "I told you so".
All we are left with from that author is an ending to the article "Employee Benefits will continue to monitor this piece of legislation and update readers as we gain clarity."  The fact the author never wrote with the "I told you so" clarity might well be the evidence that CRA does not apply and there was no appetite to run "what a relief we were wrong" as an article.

Grumpy_chap

I found this link
https://www.justanswer.co.uk/law/o6nqe-salary-sacrifice-car-employers-scheme.html

It seems to conclude that because the lease agreement is between the employer and the lease company, then CRA does not apply as it is then a B2B transaction.