There can be considerable tax advantages in offering car parking benefits for staff, says David Woods
Employers that offer car parking as a benefit typically provide a season ticket for a car park near their place of work, which is paid for by employees through a salary sacrifice arrangement. Offering the perk in this way, whether it is included in a flexible benefits scheme or provided as a standalone option, has financial advantages for both employers and employees.
Thanks to a clause in the Income Tax Act 2003 employees will save on income tax and national insurance contributions (NICs), while employers will save up to 12.8% NICs on the amount that has been sacrificed. Paul Johnson, national sales manager for National Car Parks (NCP), explains: “Staff who take the car parking benefit [through] salary sacrifice can save 40% in tax.”
This can be a valued perk, particularly within inner cities, where parking can be costly and space is at a premium.
In order to qualify for the tax breaks, however, employers must adhere to set criteria when setting up a scheme. Martha How, head of reward consulting at Hewitt Associates, says: “The clause states that for this tax break to apply, staff must park in a car park ‘at or near’ their place of work, which means that they can’t park at a train station and get a commuter train to work. However, the word ‘near’ in London could be a mile or so away from a workplace, depending on where spaces are available.”
The perk is most suitable for staff who drive to work but do not have access to an on-site car park, which is free to use. In most cases, the benefit will remove the hassle of having to find a parking space or reduce the need for staff to take public transport to and from work because no spaces are available onsite. Making it easier for employees to park in the morning may also reduce the risk of them being late for work. But although an employee has paid for a space, there may be instances when one is unavailable as the car park is full.
The perk will also not suit all organisations. “Employers in city centre sites will be uninterested in parking season tickets due to the fact staff might prefer public transport [to] avoid traffic,” adds How.
On the flip side, many employers are now concerned about environmental issues, so have moved towards greener policies in an attempt to lower carbon emissions. These organisations, therefore, may wish to encourage staff to avoid bringing a car to work. Taking this into consideration, How is not optimistic about the future of car parking schemes. “Car parking is an under-used benefit. The take-up has never been high and now with increasing weight behind the green debate it is less likely that these schemes will be introduced [by employers],” she says.
However, Johnson believes that car parking fits in well with green policies, as it may help to lower carbon emissions slightly in some instances. “The scheme enables people to have an end destination which they can travel straight to instead of driving around towns looking for a space,” he explains.
Some employees also depend on their car during the working week to enable them to meet commitments in their work and home lives, for example, for school runs, so public transport will not suit everyone. “Car parking will not always be at the top of people’s priority lists, but a lot of people need to drive to work so the option is there for them,” says Johnson.†
†
Fact file: Car parking
What is car parking?
When offered as a benefit, car parking enables employers to provide staff with a car parking space near their place of work. The benefit is often paid for by the employees through a salary sacrifice arrangement and is tax efficient.
Where can I get more information?
For information about the tax position surrounding car parking as a benefit, visit www.hmrc.gov.uk
Who is the main provider?
National Car Parks (NCP)