7 Think about vehicle choice

A key decision is whether to restrict choice in order to maximise manufacturer support or whether to offer a full range of manufacturers for exmployee choice, but control CO2.

The lower the CO2 the greater the tax savings. The advice is to go sub-120g/km if you can.

Employers can make additional financial savings by offering cars below 110g/km as they attract 100% first-year writing down allowances.

A further benefit of low emission vehicles is they offer better mpg, helping employees with the rising price of fuel.

8 Set up the website

The online facility should show the range of cars available, the gross and net sacrifice amounts and the BIK tax charge that employees would incur.

It should also be easy for employees to understand pensions and legal matters and contract length.

LeasePlan suggests the website should have a consumer look and feel with searching based around lifestyle and budget rather than a make, model and mileage format.

Another factor to bear in mind, according to ING’s Neilson, is whether the system has real time quotes.

Older systems may have a rate book uploaded into the back of system which is updated on a monthly basis rather than in real time.

“An employee could place an order, go through the authorisation process and then when it arrives at the leasing company they discover the price is no longer valid because there’s been a manufacturer price increase,” Neilson explains.

“You also need a quick and slick authorisation process that doesn’t require lots of paperwork,” he adds.

9 Choose the contract length

Providers advise sticking to a two or three-year contract.

Any longer and the company is exposed to a greater risk of employees leaving the business.

Minimising contracts to three years also enables companies to adapt to government tax policies, allowing changes to be made in car choices if rules change.

10 Mitigate the risks

One of the biggest risks a company faces is being stung with early termination charges if an employee in the salary sacrifice car scheme resigns or is made redundant.

Other scenarios the company needs to consider are employees going on long-term sick leave or taking maternity or paternity leave as the employees’ income will be reduced and they may no longer be able to sacrifice the required amount of salary.

There are also excess mileage and end of contract damage charges to consider.

“You need a good statistician on the team so that certain contingencies can be built into the scheme,” Redman advises.

“For instance, if you know that 1% of your female population takes maternity leave each year you can build that into your plan. You also need to know the company’s attrition rate.”

A company could look at early termination insurance with cost added to the monthly rental fee employees pay or build up a contingency fund to cover potential costs, again levied through the vehicle rental.

Another option is to include clauses in the terms and conditions which allow the company to take termination costs from a driver’s final salary.

Processes also need to be established to collect fines and congestion charges or to handle insurance excess or requests to take the vehicle abroad.

Pensions are another area where caution needs to be exercised as the scheme could impact on pension contributions or retirement income. You will need to discuss this with your pensions provider and make sure that you adhere to their rules and that staff are not disadvantaged.

North Yorkshire County Council has insurance which individuals pay each month to protect them against early termination charges, but it only kicks in after six months.

John Robinson, benefits and reward consultant at the council, also points out that when employees resign the council is invoiced for any excess mileage or damage charges which then have to be collected from the employee.

11 Contact HMRC

Although there’s no formal requirement to confirm the scheme with HMRC as salary sacrifice is a contractual arrangement not a tax change, it is good practice to, according to Waters.

A tax adviser or your leasing company can help with notification, according to Neilson.

“I would recommend sending a letter to the HMRC during the implementation stage. HMRC will also want to see a before and after payslip.

"This could be a mocked-up payslip produced by your tax adviser or they may want to see an actual payslip after the scheme has launched. Tax offices don’t all function in the same manner so seek advice,” he warns.