Salary sacrifice
Salary sacrifice schemes allow employees to give up a portion of their income before tax in return for a company car. These cars can be funded by the company through a number of methods, but contract hire is the most common.
The majority of contract hire companies are now already offering salary sacrifice schemes or are about to launch such schemes.
Through a salary sacrifice arrangement, employees pay for a car out of their gross salary, so save on income tax and national insurance (NI) contributions.
However, company cars still attract Benefit-in-Kind tax and this is true for salary sacrifice schemes.
Salary sacrifice works best when sacrificing salary for a low emission car, as these attract the lowest rate of Benefit-in-Kind tax.
As a result, interest was triggered by the emergence of an increasingly large range of low emission vehicles from manufacturers.
Therefore, salary sacrifice is financially most attractive on sub-120g/km cars, as these produce the most attractive BiK savings for employees and NI and corporate tax/capital allowance savings for employers.
There is a growing trend for companies to replace their entire company car scheme with salary sacrifice schemes.
However, it is still considered that salary sacrifice is a HR benefit for the entire workforce.
Employers must pay close attention to employee contracts which may require amending to allow for the salary sacrifice schemes.
- Pros: vehicles can be offered at no cost to employer; and offer potential savings to the employee. More manufacturers are offering financial reductions and more large contract hire companies are now offering salary sacrifice schemes.
- Cons: employer needs to cover all potential risks such as early termination and maternity leave costs; and the scheme could be expensive if tax rules are changed. Uptake can be low and schemes require marketing within a company to ensure enough employees adopt the scheme to make it worthwhile.
Mike Roe - 05/03/2010 10:32
Your feature has identified a growing trend in the fleet industry. In our experience, the key to a complete outsourced salary sacrifice proposition is to eradicate administration and remove all financial risk. Therefore, a good salary sacrifice scheme should take away any potential burden from the client. The priority for our customers has always been lead times and availability of vehicles. Pendragon Contracts has access to 260 dealerships across its group and as a major leasing company, can ensure the shorter lead times demanded. This, in turn, enables us to provide a better experience and journey for the customer. We provide a fully bespoke service, as cars are our business. This enables us to be flexible and tailor our product offering to our clients. Through our Evans Halshaw business we can provide access to major volume brands, and when a specific customer need arises, our relationships with manufacturers allow us to react swiftly to meet its needs. It’s becoming increasingly apparent that salary sacrifice schemes need to have all these factors in place, yet a bespoke and flexible offering is critical to meet customers’ requirements and minimise their business risk. Mike Roe Sales & Marketing Director Pendragon Contracts