A car provided to employees under a salary sacrifice car scheme can provide a fantastic option to make significant savings, compared to owning or leasing your own vehicle.

Unlike the unpredictable and fluctuating costs associated with owning a car in today’s economy, the monthly cost of running a salary sacrifice car is predictable and does not vary for the duration of the contract – enabling you to drive a brand new car whilst remaining in control of your finances.

What is a salary sacrifice car?

A salary sacrifice car is a car leased by your employer from a third-party supplier which is then provided to you as part of an employee benefit package. The cost of the car is deducted from your salary* each month before you are taxed which means that you will not initially pay any tax or National Insurance on the salary sacrifice amount.

However, the provision of a salary sacrifice car is a taxable Benefit-in-Kind (BiK) in the same way as any other company-provided car and needs to be reported to HMRC on a P11D benefits form at the end of the tax year.

To set up a salary sacrifice arrangement, your employer will need to change the terms of your employment contract and you will need to agree to this change in order to participate in the scheme.

*Please note:   As an employee, you will only be eligible to participate in a salary sacrifice scheme as long as your salary remains above minimum wage after the sacrifice amount has been deducted

Glossary of terms

Click here to read our guide which explains P11D forms and other salary sacrifice terms in further detail.

Benefits

•  Brand new vehicle to drive
  Opportunity for all employees to drive a brand new vehicle, not just those people who qualify for a car through their job description or seniority. Free delivery of your chosen vehicle, directly to your home or location of your choice.
• No deposit, set up fees or credit check
  All you need is a clean driving licence and fuel
• Potential Tax and NI savings
  As a non-cash benefit, salary sacrifice car schemes reduce both income tax and National Insurance Contributions (NICs) for employees since the monthly cost for the vehicle is deducted from your salary before tax and will therefore reduce the taxable amount. However, as explained above there will be a BiK tax liability which could offset some of the savings.
• Avoid unforeseen running costs
  A fixed monthly cost for the duration of the contract enables you to plan and manage your finances. A fully inclusive vehicle package will shelter salary sacrifice car drivers from many ongoing costs, both predictable and unforeseen. The reason is that all reasonable running costs are covered under the agreement including fully comprehensive insurance, road fund licence as well as breakdown and recovery, servicing and repairs.
• Hassle free way to drive a car
  The salary sacrifice scheme provider manages any issues that arise, from accident management to end of contract renewal
• Enhanced discounts on vehicles
  Leasing companies are able to acquire vehicles for a lower price than available to an individual consumer on the forecourt.  This means that leasing a car through a salary sacrifice scheme can often be cheaper than buying directly from a car dealer.  Alternatively, you may be able to get a better car for your money than if you were to go it alone.

• Green vehicles
  By opting for a car with the lowest possible CO2 emissions, employees can benefit from greater savings since the Benefit-in-Kind (BiK) rate is based on the CO2 emissions of your chosen vehicle (as well as the list price) and rates for all-electric cars have now been reduced from 16% to 0%. Employees switching to an electric vehicle will also benefit from being exempt from Congestion Zone and Clean Air Zone charges.
• Available to family and friends
  Many employers enable their employee benefit schemes to be extended to family and friends of eligible employees.
• Free collection
  Collection of your vehicle from a named location of your choice when your contract expires.
• Option to purchase at the end of contract
  If agreed with your employer

All in all, there is no doubt that participating in a salary sacrifice car scheme can save employees money by providing a hassle free route to driving a well maintained and modern vehicle for a low monthly cost.

By choosing to run an electric vehicle, your costs can be even further reduced, whilst enabling you to significantly reduce your carbon footprint.

 

NB:  the individual services included in a car salary sacrifice scheme together with the taxation savings for employees will be dependant on how your employer has set up the salary sacrifice scheme