Vehicle Salary Sacrifice

MoneyIs Salary Sacrifice for you? Read our summary on the scheme below and decide for yourself or your business.

Salary Sacrifice

Salary sacrifice is an arrangement between an employer and employee. It is a contract where an employee gives up the right to receive part of their salary in return for their employer’s agreement to provide some form of non-cash benefit. The scheme is a tax-efficient way of improving an organisation’s total remuneration package. There is no additional cost to the employer and it also delivers employer savings as there is a reduction in the National Insurance Contribution (NIC) paid on the salary that has been sacrificed.

Salary Sacrifice Car Lease

Businesses lease vehicles are then used in the salary sacrifice scheme to provide company cars to employees. Vehicles are leased for a specified period of time and mileage on behalf of the employee that has sacrificed a portion of their wage, providing them with one of the most valued staff benefits there is. The business handles all payments to the leasing firm via this salary reduction.

HMRCCar Scheme for Employees

The cost of the vehicle is deducted from the employees’ gross salary which saves them tax and National Insurance contributions. Benefit in Kind (BIK) liability is incurred by the employee as H M Revenue and Customs (HMRC) view the vehicle as a company car. Since BIK company car tax rates for eco-friendly cars are as little as 10% of their P11D value, it is often cheaper for an employee to take a car as a taxable benefit instead of buying or leasing one privately, out of their after-tax salary. A company car is a benefit which some employees were not once necessarily entitled to but with a salary sacrifice car scheme in place, it is now possible and is in fact beneficial for all involved:

Benefits to the Employer

  • Considerable National Insurance Contribution (NIC) savings
  • Minimal set-up and management costs
  • Usage of environmentally friendly and efficient cars
  • Potential savings on daily car rental (or equivalent)
  • Employee satisfaction

Benefits to the Employee

  • Tax and NIC savings
  • No unexpected vehicle bills
  • Access to brand new cars at low monthly rates
  • No credit checks or deposits required

Vehicle Salary Sacrifice

More and more businesses are considering a salary sacrifice car scheme for the employees. It is cost-effective (tax savings all round) and is a less risky method of fleet management compared to the business mileage racked up by grey fleet.

Written by Ciara Macpherson

Image One Attribution: otama