Salary sacrifice car schemes – consumer rights warning

Sullypants

I’m happy to discuss this, but I’m not here to argue what the law is for the sake of it. The law is the law when it comes to FCA regulated firms. It applies whether they’re offering private leases, salary sacrifice cars, or both.

The FCA is there to make sure those rules are followed, and the FOS uses them to decide what they can look at. Under both the FCA handbook DISP 2.7.3R and the Consumer Rights Act 2015, a consumeris defined as an individual acting for purposes outside their trade, business, or profession. That’s exactly what salary sacrifice users are doing, we’re not receiving a free perk, we’re exchanging part of our hard earned salary for the use of a personal vehicle. Your employer doesn’t contribute. It’s simply a different payment mechanism for goods, no different in substance to a personal lease.

I’ve done my research, and while big companies might try to dispute things, they can’t just rewrite the law to suit themselves and they can’t contract their way out of rules that the FCA has set. That’s simply how it works 😀

Okell

I think this is an interesting question, but I've no idea what the answer is.

However, there is obviously an agreement between the employer and the employee for the employer to supply a car to the employee in consideration of a lower salary.

I don't see why that agreement is not caught under s6(1) of the CRA.  And I don't see how the tax circumstances impact on that.  Tax is irrelevant here.

There are two agreements: a B2B one between the lease company and the employer to which the CRA does not apply, and a B2C one between the employer and employee to which the the CRA does apply.

The only real argumant I can see against that is what @Alderbank put forward earlier, and that is whether the employer can rightly be considered a "trader" for the purposes of s2(2) of the CRA

Alderbank

Sullypants said:

Under the FCA’s DISP rules, ANY FCA regulated firm must treat complaints from consumers as eligible. The FCA Handbook defines a consumer as “any natural person acting for purposes which are outside their trade, business or profession” (DISP 2.7.3R). The Consumer Rights Act 2015 also defines a consumer in almost identical terms, as an individual acting wholly or mainly outside their trade or profession.

It doesn’t matter whether the payment is made by direct debit, card, or through salary sacrifice. In all cases the end user is the one exchanging part of their wages for the use of the vehicle for personal and domestic purposes. Again Salary sacrifice is simply a tax efficient way of structuring payment, it doesn’t change the consumer status of the person using and paying for the car…. for personal use. 

Firms like Arval can’t sidestep FCA DISP rules by calling it “business to business” or “company car” when in substance it’s an individual consumer leasing a car for personal use.

I think it does matter.

The Government says that salary sacrifice is covered by contract of employment, as it involves varying your employment terms to give up a portion of your cash pay in exchange for a non-cash benefit.
This is a matter of employment law, not just tax law. A formal agreement and a written variation to your employment contract are required.

Your contract for the lease of your car is a contract for services. It can't be a contract for goods because under HMRC rules you aren't allowed to own the car during the contract period.

Section 48 of the Consumer Rights Act says:

Contracts covered by this Chapter
(1)This Chapter applies to a contract for a trader to supply a service to a consumer.
(2)That does not include a contract of employment or apprenticeship.

Sullypants

@Okell

That’s exactly how I see it too 👍

The structure of salary sacrifice inevitably creates two contracts:

Employer > Leasing company (B2B) – outside the CRA.

Employer  > Employee (B2C) – where the CRA should apply.

I agree that the tax element is irrelevant, it’s simply the mechanism for payment. From the employee’s perspective, it’s no different to a deduction going to a private lease provider; the exchange is still my earned wages for the use of goods for personal/domestic purposes.

The only sticking point, as you rightly say, is whether the employer can be classed as a “trader” under s2(2) CRA. But given that they are supplying vehicles in the course of business (albeit via a third party lease), and in exchange for consideration (salary reduction), I’d argue that they do meet that definition. If they didn’t, it would effectively leave consumers in salary sacrifice arrangements unprotected, which can’t have been Parliament’s intention when drafting the Act.

That’s why I believe the FOS/FCA need to take a substance over form approach here. These arrangements mirror personal leases in every practical sense, and excluding them would create a glaring regulatory loophole for big firms to exploit.

Sullypants

For clarity, here’s my position so far:

The FOS have assigned me a case number. If there were any dispute at the outset, the FOS would have advised that this was outside their jurisdiction.

FOS have advised that before an investigator can be assigned, Arval must either issue a final written response with referral rights to the FOS, or the FCA mandated 8 week period must expire without them doing so.

Arval have so far refused or ignored my requests for a proper final response. Instead, they have attempted to legally mislead me by claiming the FOS has no jurisdiction.

The 8 week deadline will expire in less than a week. At that point, I will also further raise this with the FCA and ask them to investigate Arval’s handling of the complaint and failure to finalise their response.

I’ll update in due course 😎

Sullypants

@Alderbank

That’s a good point, and I agree salary sacrifice begins as a variation to employment terms, that part is employment law. But what follows is a separate contract for services the provision of a car in return for consideration (the sacrificed wages).

The fact that HMRC rules prevent ownership doesn’t change that. leasing itself is always a contract for services rather than goods. That’s true whether it’s a personal contract hire PCH agreement or a salary sacrifice one.

You’re right that CRA s.48 excludes contracts of employment. But my position is that the car benefit isn’t the contract of employment itself, it’s a distinct arrangement facilitated through employment. In substance it mirrors any other regulated lease:

1. I give up part of my earned wages.
2. i receive personal use of a vehicle (for social, domestic, family purposes).
3. The supplying firm (Arval) is FCA regulated.

CRA 2015 s.2(3) defines a consumer as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.” That is exactly the case here: I’m an individual using the car for domestic/family purposes, not for trade.

So, the exclusion for employment contracts shouldn’t be read as stripping away consumer protection from salary sacrifice users. Otherwise we create a regulatory gap, two people can lease the exact same car from the exact same provider, but one via PCH and one via salary sacrifice and only one is protected. That makes no sense from a consumer rights standpoint.

So In short yes, it’s routed through employment, but the substance is still a consumer contract for services. That’s why I believe the CRA and DISP rules should really apply…

Okell

Alderbank said:

Sullypants said:

Under the FCA’s DISP rules, ANY FCA regulated firm must treat complaints from consumers as eligible. The FCA Handbook defines a consumer as “any natural person acting for purposes which are outside their trade, business or profession” (DISP 2.7.3R). The Consumer Rights Act 2015 also defines a consumer in almost identical terms, as an individual acting wholly or mainly outside their trade or profession.

It doesn’t matter whether the payment is made by direct debit, card, or through salary sacrifice. In all cases the end user is the one exchanging part of their wages for the use of the vehicle for personal and domestic purposes. Again Salary sacrifice is simply a tax efficient way of structuring payment, it doesn’t change the consumer status of the person using and paying for the car…. for personal use. 

Firms like Arval can’t sidestep FCA DISP rules by calling it “business to business” or “company car” when in substance it’s an individual consumer leasing a car for personal use.

... Your contract for the lease of your car is a contract for services. It can't be a contract for goods because under HMRC rules you aren't allowed to own the car during the contract period...

I'm not disagreeing with you but trying to understand your POV.

Why is the contract for the lease of the car a contract for services and not a contract for the hire of goods?

Doesn't the car qualify as "goods" under s2(8) - "... any tangible movable items..."?

And why is the ownership of the car relevant as to whether it qualifies as "goods"?  If you are hiring something it's quite possible that you will never own it - but it would still be a contract for the hire of goods and be subject to the CRA, wouldn't it?

Maybe I'm wrong, but I think your earlier argument that the employer is not a "trader" for the purposes of the CRA might be a stronger position.  (Although I think @A_Geordiewas of the opinion that an employer could be a "trader" in this context)

Sullypants

@Okell

Yeh you’re right, a leased car is classed as “goods” under s2(8) CRA 2015 “any tangible movable items”. As you said, ownership isn’t the test, hire agreements involve use without ownership, but the goods are still subject to CRA protections. So in my case, the EQB is goods, not just a “service.”

I personally think, where it gets muddied and where firms try to throw you off is the contractual structure. The lease sits between Arval and my employer (B2B). But my employer then provides me the vehicle in return for salary sacrifice. That is a trader to consumer arrangement under CRA definitions, because my employer is providing goods in the course of their business, and I am receiving and paying for those goods wholly outside my trade or profession.

The services angle tends to crop up where firms argue that salary sacrifice is just an employment benefit. But from my understanding the CRA makes a distinction: s48 excludes contracts of employment, but not contracts within employment that are about supply of goods/services. Salary sacrifice is simply a payment mechanism, not the essence of my employment.

I believe that’s why the employer’s “not a trader” argument doesn’t hold, and why firms like Arval can’t just relabel this as business use to avoid FCA/CRA obligations. 

Alderbank

The difference is to do with ownership, what the law calls 'title'

In a contract of sale, title passes from the seller to the buyer. In the Consumer Rights Act these contracts are covered in Chapter 2, Goods.

In a contract for services, title for the car, or holiday cottage, or telephone line, stays with the owner. The contract allows the consumer to borrow and use it for an agreed time and then return it. These contracts are also covered by the CRA but have significant differences and are covered in Chapter 4, Services.

I don't think that is just 'my' point of view. I think that is the law's point of view.

Okell

Alderbank said:

... In a contract of sale, title passes from the seller to the buyer. In the Consumer Rights Act these contracts are covered in Chapter 2, Goods...

But it doesn't need to be a contract of sale with title passing to the consumer to be covered by Chapter 2 of the CRA, does it?

Doesn't chapter 2 s6(1) include contracts for the hire of goods where title never passes?

Apologies if I'm being dense but I don't understand why it must be a contract for services and not for goods.

Even if it is a contract for services, doesn't s48(2) excluding contracts of employment from the definition of services only make sense if it is read as meaning that the employer can't use the CRA as against the employee.  Not the other way round?  (I'll accept that may be a bit of a tenuous argument, but I can't otherwise see what else the purpose of s48(2) would be).