Key Information
What is Salary Sacrifice ?
In the UK the salary sacrifice car scheme (also known as a salary exchange) is an arrangement that employers may make available to employees, where part of employees’ pre-tax salary before tax is exchanged for other benefits, usually non-cash items.
The great thing about Salary sacrifice is that it’s non taxable !
Not only will it lower the employees Income Tax, but it also reduces their National Insurance contributions. And the best part is that Employees don’t need to claim for any tax relief from HMRC, as the savings are made immediately
The agreed amount can be taken from the employee’s monthly gross salary before tax and national insurance contributions are calculated. Since the salary sacrifice isn’t taxable, both the employer and the employee will save money on the payments.
Benefits for the Employee
- Fully maintained vehicle package: Servicing, maintenance, insurance, road tax, roadside breakdown and recovery are all included
- Cheaper than a personal lease: There is no requirement for a deposit
- Lower fuel costs: Electric charging decreases fuel costs, especially when charged at home
- Reduced tax & NI: Taxable salary is lower due to the vehicle fixed amount of cost coming directly from the gross salary
- Have access to large fleet discounts: Through your employer / ecofleet plus possible VAT savings
- The Salary sacrificed sum is taken pre-taxation :
- The fully comprehensive motor insurance : can be included via the employer for the contract period
- No impact on credit score: The contract is with the employer so there is no need for a credit check
It is important to clarify that a salary sacrifice car is still eligible for a company car tax, known as a benefit in kind. This additional tax is charged monthly based on the value of the car, its CO2 emissions and your tax bracket.
Once the employee and employer agree to a salary sacrifice car scheme you are locked in for the duration of the contract, unless the employee leaves your job at which point the employee will have to give the car back.
Benefits for the Employer
- Greener fleet: Increases carbon neutral vehicles on fleet and supports the environmental, social and governance (ESG) agenda
- Duty of care: Encourages employees into brand new, fully maintained cars instead of using their vehicles for business (known as grey fleet)
- Lower fuel costs: Electric charging is significantly cheaper than diesel or petrol [3]
- Attractive employee benefit: Having a flexible benefits package which includes salary sacrifice schemes can help employers retain talent. Valuable employee recruitment and retention tool
- Cost Savings: Employers can save money through salary sacrifice because employees get a portion of their pay as non-taxable benefits rather than as taxable income. This means that companies who offer these schemes benefit from reduced payroll tax and national insurance contributions
- No set-up costs: Salary sacrifice is free of charge to put in place
Conclusion
Salary sacrifice schemes are a really cost-effective way for companies to offer their employees great benefits. Depending on the particular scheme, employees benefit from tax savings, better benefits and improved wellbeing! Employers also benefit from more motivated and happier employees as well as tax breaks. Therefore, salary sacrifice schemes are definitely worth considering if you’re considering an upgrade to your benefits package or company car policy.We can assist on both company car policies and Salary Sacrifice. I would be delighted to hear from you For an informal chat. Please feel free to contact me
We would love to discuss your requirements and help you understand where the greatest savings lie for your business and your staff. We can help you set up the rules of your scheme. For further information please contact us.
