Fleet News

Funding: Salary sacrifice proves an all-round winner

Many companies offer their staff salary sacrifice benefits, where employees surrender part of their wage in return for a non-cash benefit, typically health care and childcare.

But few offer the ultimate subsidy: a new car.

Yet offering staff a way to fund a new car more cheaply has wide-ranging benefits for the company. It can pull them out of grey cars, typically older and more of a risk; it can be a way to fund a wage increase when you can’t give any more money, at no additional cost; and it cuts salary and National Insurance costs. 

Employees save on income tax, VAT and NI contributions. The savings are usually far greater than any rise in benefit-in-kind tax.

There is also an opportunity for the employer to profit share on the employee savings.

Deloitte is offering its salary sacrifice scheme as a template for other organisations.

Software has been developed to enable leasing companies to offer the salary sacrifice scheme to their fleet customers.

Its scheme, dubbed all-employee, is based around offering cars below 120g/km CO2 emissions to staff who do not qualify under the normal company car programme.

Mike Moore, Deloitte director of Global Employer Services, says there is a clear distinction between providing cars to employees that aren’t currently entitled to one and running a normal company car programme as a salary sacrifice scheme.

“You need critical mass; hundreds of people must join to make it viable ,” he says.

However all company fleets would benefit from offering salary sacrifice as an alternative. “It’s a better way of costing for perk cars because it is underpinned by the wholelife cost approach. And it reduces CO2.”

It’s also perfect for firms with large grey fleets. “A company can typically save £500 per car over two years on a sub-120g/km car.

And drivers can save hundreds of pounds per month on a like-for-like PCP,” Moore says.

However, the recession is perhaps not the best time to be considering introducing a new scheme, according to consultant David Rawlings.

He points to uncertainty over redundancies, but is confident that salary sacrifice does have a big future.

Public sector fleets are already showing interest, according to PricewaterhouseCoopers.

“More companies will look at it as a viable option,” says Rawlings. “There will be a sea-change in the way they think about fleet cars and the role they play in the business – it will be part of the remuneration strategy. But the economy has to be the right time.”

Salary sacrifice works for many of the reasons that Employee Car Ownership (ECO) does – tax efficiencies and flexibility of choice.

ECO schemes have been growing in popularity over the past couple of years. In an ECO scheme, the employer needs to get money to the employee to fund the cost of the vehicle.

This will normally be the amount needed to pay the vehicle’s maintenance and finance repayments, less the amount the employee would have paid in company car tax.

To prosper, they need low employee attrition rates, high proportion of high rate taxpayers, adequate business mileage and sensible policy decisions.

The benefits...

  • Can help green agenda
  • Increases employee flexibility
  • Moves away from grey fleet
  • Benefits from new tax rules
  • Generates savings for employee and employer
  • May include carbon offset

...and the issues

  • HMRC must be satisfied that the salary sacrifice is effective.
  • Eligibility criteria.
  • Impact of salary sacrifice on occupational pensions, overtime, bonuses, future pay rises - concept of “Notional Pay”.
  • Changes to systems.
  • Impact on working tax credits, minimum wage, state benefits, statutory maternity pay, etc.
  • Implications of maternity regulations.
  • Vehicle choice: focus on low CO2 emissions cars.
  • Consumer credit licence requirements
  • Source: PricewaterhouseCoopers

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