Automotive Business Magazine – Q3 2026 – Digital edition - Flipbook - Page 31
OPINION
RE TA I L
Navigating rising
employment costs
→ Adam Wingrove is tax manager at Clive Owen LLP
A
utomotive retailers
entered the 2026/27 tax
year facing a familiar but
intensifying challenge: rising
employment costs coupled
with a highly competitive
labour market.
Technicians, sales
executives and aftersales
specialists remain in short supply, and
the pressure to recruit and retain talent
is colliding with a tightening tax and
regulatory environment.
While much of the focus is
understandably on pay, remuneration
strategy now requires a more holistic and
forward-looking approach.
The continued freeze on personal
allowances and income tax thresholds is
a key factor. As wages rise to keep pace
with inflation or market expectations,
more employees are being pulled into
higher tax bands through fiscal drag.
Higher gross pay does not always
translate into a meaningful increase
in take-home pay. Over time, that can
affect morale and retention if not
properly understood and communicated.
At the same time, the evolving
framework under the Employment Rights
Act is reshaping expectations around
pay transparency, flexibility and fairness.
Day-one rights and increased emphasis
on predictable working patterns mean
that how pay is structured is becoming
just as important as how much is paid.
For directors and business owners, the
longstanding balance between salary
and dividends remains relevant, but
increases in dividend tax rates have
reduced the relative advantage.
There is growing importance in
designing remuneration packages that
combine tax efficiency with broader
employee value. Salary sacrifice
arrangements remain one of the more
effective tools. Pension contributions
through salary sacrifice continue to
generate savings, while low-emission
company cars, particularly EVs, benefit
from favourable benefit-in-kind.
However, these arrangements must be
carefully structured, because compliance
with minimum wage rules and clear
communication with employees is
essential, particularly as regulatory
scrutiny increases.
Planning for the future
One of the most significant
administrative changes will be the move
to mandatory payrolling of benefits in
kind from April 2027. This will replace
the traditional P11D process for most
employers, shifting tax collection into real
time. While this should improve accuracy,
it also increases the operational burden.
For dealer groups with multiple sites
and varied benefit offerings, ensuring
data accuracy and timely reporting will
be crucial.
Hybrid working adds another layer
of complexity, and while less prevalent
in frontline roles, it is common across
support functions such as finance,
marketing and HR. The distinction
between business travel and ordinary
commuting remains a frequent source of
confusion, and incorrect treatment can
lead to unintended tax liabilities.
There are also opportunities that are
sometimes overlooked. Trivial benefits
and annual event allowances, for
example, can provide cost-effective ways
to enhance employee experience without
significantly increasing tax exposure.
In a sector where culture and
engagement are key to retention,
these smaller interventions can have a
disproportionate impact.
Automotive retailers must move beyond
reactive pay increases and towards
structured, well-communicated reward
strategies that balance compliance,
efficiency and staff expectations. Those
that do will not only to manage costs
better, but compete for the talent that
underpins long-term performance.
Q3 2026
AUTOMOTIVE BUSINESS
31
