Salary sacrifice schemes explained
As reported previously, Salary Sacrifice schemes changed in April 2020 when the government provided further clarification around tax for fully electric, hybrid and other low emission vehicles. This has further increased the attractiveness of getting a new vehicle via a salary sacrifice scheme.
For electric cars, the BiK (Benefit in Kind) rate is 1 percent for the 2021/22 financial year. The rate will rise to just 2 percent in 2022/23. This means this tax break could make salary sacrifice an “effectively perfect” perk for drivers who want electric cars.
For vehicles ordered from January 2022
A driver will be taxed on whatever the greatest is between:
- The Income Tax due on the amount of salary sacrificed on the finance rental of the vehicle
- The Benefit in Kind (BIK) charge on the car, which is determined by the P11D and CO2 emission levels of the vehicle.
A driver will not pay income tax on the amount of salary sacrificed to cover the maintenance and insurance elements in the agreement, saving them money. Even more savings can be had by encouraging employees to opt for low emission vehicles, as drivers will only be charged the benefit-in-kind on the vehicle, providing savings for the amount of salary sacrificed.
How does a salary sacrifice scheme work?
Salary Sacrifice is a benefit scheme that enables employees to get a brand-new electric car. As part of the group behind Evans Halshaw and Stratstone, we can offer your employees amazing corporate discounts on new cars and an all-inclusive fixed monthly price that includes tax, insurance, maintenance and more.
As the employer, you lease the car on behalf of your employee, and they then get to drive a brand-new car using part of their gross salary - making savings on income tax and national insurance.
The benefits of salary sacrifice
The benefit of salary sacrifice is always the convenience of an all-inclusive monthly fee that incorporates full maintenance, tyres, insurance, road tax and breakdown cover, as well as the fact that no credit check or deposit is required.
A new car can help increase employee motivation, leading to improved productivity and retention, and as the employer it costs you nothing to set up and is easy to run. There is no catch, and is really great value for money. A Pendragon salary sacrifice car scheme can also help towards meeting duty of care obligations for drivers who use their own vehicles for business use. This is being done by providing your drivers with brand new, fully maintained vehicles equipped with the latest in vehicle safety and technology.
Other potential savings
The main advantage to employers for implementing salary sacrifice schemes are the savings they make in National Insurance Contributions (NICs). Employers pay NIC contributions to employees’ salaries, but benefits such as salary sacrifice are exempt.
Employees will also be financially better off as they pay less tax and NIC on their salaries while getting to enjoy a brand-new vehicle that would have cost significantly more through personal or business contract hire.
If choosing an electric car, employees can typically save 30 to 40 percent of costs through income tax and national insurance.
