Salary Sacrifice Car Scheme – FAQs
Salary Sacrifice Explained
Don’t have time to read the entire article? Here are the basics you need to know:
• A salary sacrifice scheme means that an employee gives up part of their salary in return for a non-cash benefit such as a lease car.
• A salary sacrifice scheme for lease cars offers employers greater control over their grey fleet, and CO2 emissions, improving CSR targets.
• The employee benefits from a new company car at a lower cost than retail prices, and the employer benefits from higher levels of employee retention and available tax breaks.
What is a salary sacrifice car scheme?
A salary sacrifice scheme is a contractual arrangement whereby an employee surrenders part of their cash remuneration in return for a non-cash benefit, such as a company car.
New innovative employee car scheme now available
How does a salary sacrifice car scheme work?
A salary sacrifice car scheme for lease cars is a way for companies to provide their employees with a new vehicle that is fully insured and maintained, at a lower cost per month than if the employees were to buy the vehicle outright. Part of the employee’s salary is sacrificed before tax and National Insurance is taken. This means that employees and employer will save money, and the organisation offering the salary sacrifice scheme provides an attractive benefit for their employees.
Why use salary sacrifice to fund a company car?
Once the sole preserve of senior management and the company sales force, now every employee can be eligible to drive a company car. Car salary sacrifice schemes can bring benefits around employee motivation, tax relief and your green credentials.
How does salary sacrifice work with other employee benefits?
Any salary sacrifice scheme will work much in the same ways as outlined above, whether it’s a company pension scheme or a company car scheme. Originally these types of scheme were used to fund personal pensions, and in fact can be used for other purposes such as childcare vouchers.
How popular is the salary sacrifice car scheme?
Even though it is still relatively new, experts at Deloitte estimate that there could already be up to 150,000 cars being provided through the scheme, around 11.5 % of all company cars in the UK. Recent research by the Association of Car Fleet Operators (ACFO) revealed that a third of companies already offer car salary sacrifice schemes.
How long does the leasing period last on a salary sacrifice vehicle?
The leasing period is usually between two to five years, although three years would be the average.
Does HM Revenue & Customs (HMRC) support these schemes?
Primarily a matter of employment law not taxation; schemes should be submitted to HMRC to obtain the relevant tax clearance at launch. Although we are not tax advisers, we work closely with a number of the top Accountancy firms – so this is something we can help you with.
Financial benefits – is salary sacrifice worth it?
What are the financial benefits for my company?
For your company, the amount of NICs is reduced. Although your company still has to pay NICs on the provision of the car, this can be substantially less than the employer NICs that would have been paid on the salary that has been sacrificed.[/fusion_toggle]
What are the financial benefits of a car scheme for employees?
Both their income tax and NICs are reduced as the remuneration shifts from cash (on which PAYE tax and NICs are due), to non-cash benefits (that are wholly or partially exempt from tax and NICs). While company cars arranged under the salary sacrifice scheme still attract the Benefit-in-Kind (BIK) tax, it can still result in an overall saving. This amount will vary depending on the individual’s situation and the car chosen.
What are the benefits of salary sacrifice car schemes?
How can it improve employee recruitment and retention?
Salary sacrifice car schemes for lease cars are an extremely attractive proposition for employees who have previously been ineligible for a company car. As a result it can form part of a company’s rewards package in order to attract new employees, while also retaining and motivating existing staff.
Additionally, it’s a stress-free way for employees to run and maintain a vehicle, as most company cars come with a comprehensive insurance package along with servicing and maintenance packages. All of this can be absorbed into the amount of your salary sacrifice each month.[/fusion_toggle]
How does a salary sacrifice scheme improve my company’s green credentials?
Salary sacrifice is financially most attractive when buying a low emission car, as they have the lowest rate of Benefit-in-Kind (BIK) tax. Statistics show that employees who take delivery of a new car as part of a salary sacrifice scheme, tend to select models with lower emissions than their previous vehicle. As a result your company can effectively use the scheme to promote more environmentally-friendly vehicles and drive down the company’s carbon footprint.
How does it reduce the risk associated with the grey fleet?
It can help to transfer drivers out of the ‘grey fleet’ (non-company controlled vehicles used for business purposes) and into a new, low emission, regularly maintained and comprehensively insured vehicle. This alone not only reduces risk but also plays a key role in managing your duty of care responsibilities.
How does an employee salary sacrifice scheme improve my company’s corporate responsibility?
In addition to enhancing your company’s green credentials, decreasing its carbon footprint and reducing ‘grey fleet’ risk it also sends out a strong signal with regard to your overall corporate responsibility.
How do employees benefit from a salary sacrifice car scheme?
They take delivery of a brand new, fully maintained car at a far lower cost than if they were to buy a car privately especially as they have to access to their employer’s corporate purchasing terms on new vehicles.
Are there any additional benefits for employees?
There are many additional benefits above and beyond cost savings: no deposit and affordable fixed monthly costs. Furthermore they receive a fully inclusive package including: all servicing, MOT after three years, batteries, exhausts and tyres (under normal wear and tear conditions), accident management & roadside assistance and annual road fund licence.
Control and Support
How much extra administration will my company have to deal with?
There is very little additional administration for your company as full support is provided by the scheme operator.
What if an employee leaves the company or wishes to end the employee car scheme?
With most schemes, if an employee leaves they give up the car and the employer would need to return the car to the leasing company and pay the early termination fee. However, Maxxia’s Lifestyle Lease avoids this; the agreement is portable and the employee is free to take the car with them should they leave the organisation.
What support should I look for when selecting a car salary sacrifice scheme?
The full capability to manage this consumer oriented product with comprehensive product, market and HR knowledge; together with the necessary back office technology, communications, technical knowledge and operational platform.
How do I keep up to date with any changes in taxation?
The tax environment is constantly changing, so it’s important to keep abreast of potential changes in the tax system that could impact on the viability of the scheme. With this in mind, we work closely with you and provide full guidance and support to assist you in understanding the tax aspects of the arrangements and obtain expert tax advice where required.
What types of organisations already offer the salary sacrifice car scheme?
Even though it is a relatively new scheme, organisations across the UK are already taking advantage of the many benefits presented by salary sacrifice. Here are just a few: Rugby Borough Council, SCAPA, Rothschild, Barber Harrison & Platt, SimplyBiz Group, Nottingham CityCare Partnership, PWC, Santander, WSP, KPMG, IBM, and Triumph Motorcycles.
Why should I choose Maxxia to deliver my salary sacrifice car scheme?
Maxxia’s car salary sacrifice scheme is called Lifestyle Lease and is unique in the market. There is no risk to the employer and the scheme is portable, allowing the employee to take the car with them should they leave the organisation.
Whatever your questions about salary sacrifice, speak to Maxxia about your needs and we will provide you with the answers. Our team of experts will make setting up a salary sacrifice scheme easy for your organisation.