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The Salary Sacrifice Scheme – How does it work and is it worth it?

by | Feb 20, 2021 | All Articles, Finance | 0 comments

We have recently looked at various personal vehicle leasing finance options, and in the last article we mentioned that there was an alternative way of financing a vehicle that needed looking at in more detail. This would be the Salary Sacrifice Scheme.

In a nutshell, the Salary Sacrifice Scheme is classed as a “company car” which enables employees to acquire a brand-new car over a 2-3 year period which is fully maintained, serviced and insured.

In this article we will look at how it works, what cars are available and the finer details to be aware of.

How does it work?

If you took out such a scheme for your employees, they would exchange part of their salary for a new car and the added services (maintenance, servicing etc…). As a result, this would reduce the amount of tax and National Insurance they would pay.

As the vehicle is classed as a “benefit in kind” they would have to pay a “Company Car Tax” (which would be made through an adjustment in their tax code) however this is often far less than the savings made in tax and National Insurance.

Aren’t Company Cars Expensive?

A while back it seemed like everyone had a company car. But then hikes in the tax paid meant that there was no real benefit in having one.

The recent reduction in company car tax – and introduction of very low tax at 1% for electric vehicles and very low tax for hybrid vehicles – means that a Salary Sacrifice Scheme is extremely viable once more.

Why does the Salary Sacrifice Scheme make sense?

For the Employee

There are lots of reasons why the Salary Scheme makes sense for an employee. The main reasons are;

  • Access to a brand-new car every 2 or 3 years
  • The fee includes all Servicing & Repairs so there aren’t any unexpected bills.
  • Income tax and NI savings
  • Unlimited Tyre Replacement/Repair (even due to accidental damage)
  • Access to competitive buying terms for car and servicing
  • Comprehensive Breakdown Cover included
  • No deposit required – fixed budget monthly rental
  • No credit checks to undergo
  • Fully comprehensive ‘Business’ Insurance fixed for 3 years (regardless of claims)
  • Includes road tax (if applicable) for the whole contract
  • An additional 2 named drivers allowed (min 18 years)

For the Employer

As well as offering a popular employee benefit, your business can make substantial savings in National Insurance contributions – with as much as £350 per ultra-low emission car.

Would the employee own the car?

At the end of the 2-3 years they can either hand the car back, or take an option to purchase the vehicle.

What type of cars are available?

Most cars are available under the scheme – however the biggest savings will be on electric and hybrid vehicles. As mentioned earlier, there is just 1% company car tax on electric vehicles and very low tax on hybrid vehicles.

As well as the biggest savings being on Electric and hybrid vehicles, they are often the best fit of many employees’ driving use. This makes EV’s and Hybrid vehicles a good choice for practical reasons too.

There are also some decent savings to be had on certain petrol and diesel vehicles with low emissions.

To find out more about the best vehicles for your employees needs, we’ll be happy to guide you further if you get in touch.

Other considerations

An employee must have completed 6 months in your organisation. They must also consider whether they are going to be there for 2-3 years. There could be financial penalties should they voluntarily leave employment before the end of the agreement.

In conclusion

There are many benefits to the Salary Sacrifice Scheme for both employees and employers alike. If you would like to find out more about the scheme or the vehicles available, please don’t hesitate to get in touch using the form below.

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