The advantages of offering a salary sacrifice car scheme
• A tax-efficient benefit for employees and, to a lesser extent, employers, at little or no cost to the business.
• A useful retention, engagement and motivation tool.
• Employees get hassle-free access to a car they may not have been able to afford otherwise.
• Salary sacrifice schemes can reduce the risk associated with grey fleet.
• They add to an organisation’s green credentials by focusing on fuel-efficient, low CO2-emitting vehicles.
A salary sacrifice car scheme can produce tax and NI savings, boost an employer’s green credentials and improve employee engagement
A salary sacrifice car scheme is, simply, a mechanism by which employees enter a legally binding agreement to give up part of their gross salary in exchange for a car.
In the process, staff will save on the income tax and national insurance contributions (NICs) they pay, and benefit from their employer’s buying power when it comes to getting manufacturer discounts or the best deal on extras, such as car insurance.
Savings will vary depending on the type of car, whether the person is a higher or lower-rate taxpayer and the structure of the scheme. Deloitte says a higher-rate taxpayer could expect to save about £124 a month compared with obtaining a lease car on the open market. For a lower-rate taxpayer, savings might be about £70 to £100 a month.
But Karen Lewis, auto solutions manager at ALD Automotive, says it is important not to raise expectations unrealistically.
Although the cars are subject to benefit-in-kind tax, this will be more than offset by the savings staff make.
Employers, in turn, can make savings through reductions in NICs and corporation tax.
However, a salary sacrifice car scheme is much more than just a tax-efficient way to obtain a car. It can be a cost-neutral, or at least a low-cost way to foster staff loyalty, retention and engagement at a time when cash incentives remain under pressure. It can also act as a duty-of-care tool for employers to reduce their grey fleet of private cars used for business.
Ian Hughes, commercial director at Zenith, says: “Correctly consulted on and delivered, a scheme can be hugely beneficial because cars are so essential to everyday life, and this is an easy, cost-effective way to own a car. It can be good for morale and rewarding employees.”
The fact that schemes work most tax beneficially for fuel-efficient, low-CO2 cars means an employer can boost its green credentials while cutting fuel consumption.
But choosing the right provider, mitigating the risks and implementing a careful planning and communication process are all essential to the success of a scheme.
Read more on How to manage salary sacrifice company cars