Salary Sacrifice on Lease Cars
Salary Sacrifice on Lease Cars
What does Salary Sacrifice mean?
It means an employee sacrifices part of their salary in exchange for a car, bike, health benefits or other asset or service. It allows employees to get more for their money by paying for these things before their income tax and national insurance contributions are calculated, which means they will earn slightly less in their pay packet, but in turn will pay less tax. The end result is that gross reduction in salary is less than the cost of the service, making it better value.
Do employers benefit from the scheme?
Yes, irrelivant of what the scheme is (our example is lease cars on a salary sacrifice scheme) the employer will benefit from the scheme. Not only are they giving their employees access to cost saving benefits which helps with things like staff morale and attrition, there is also a cost saving. Under our scheme, employers will retain 20% of the total saving on the scheme (the remaining part is the administration cost of the scheme. Here is an example of how a company could benefit.
You save £4000 a month in N.I & VAT across a number of employee driven personal vehicles.
SalSac Administration costs £3000 a month
You Retain £1000 of the savings.
You save £12,000 a year by implementing the scheme
Result: A great deal for your business and a great benefit for your employees and their families.
What is a Salary Sacrifice Car Scheme?
This employee benefit is truly remarkable as it allows employees to exchange a portion of their salary for the opportunity to have a company-leased car of their choosing. The company handles the lease cost for a brand-new vehicle selected by the employee, while the employee agrees to reduce their gross salary to cover the lease expenses. Consequently, the business incurs no cost in this arrangement. Moreover, since the salary reduction is deducted from the employee's gross salary, they end up paying less income tax and National Insurance, resulting in a more affordable car lease compared to a Personal Contract Hire agreement for the same vehicle.
How much benefit in Kind tax would I pay on the scheme?
That depends on the vehicle, but as it stands the current BIK rate for electric cars is just 2%. This is set to increase at a rate of 1% per year until 2028, at which point it will be reviewed. As it stands the BIK rate is extremely attractive to drivers who can sign up to the scheme through their employer.
Is the Salary Sacrifice scheme complicated?
No it really isnt! We have a portal designed to support you and help create quotes, we have all the information you need to be able to implement the scheme and we will even provide you at no cost access to relevant documentation that allow minor changes in employment contracts. Our SalSac experts will guide you through the process and help with all enquiries.
What else can be included in a Salary Sacrifice car scheme?
- You can incude a brand new lease car
- Fully Comprehensive Insurance
- Home charging points
- Routine vehicle servicing
- Tyres and vehicle consumables such as brake pads or discs.
- Roadside assistance & home start.
- Manufacturers warranty and Road Tax (RFL) for the full duration of your lease.
What is the Eligibilty Criteria for drivers wishing to enroll in the programme?
- Your Salary must not fall below national minimum wage after the deduction has taken place
- Permanant UK Resident
- Permanant Pay as your earn (PAYE) Employee
- Hold a Full driving licence which does not expire before the end of the lease
- Aged between 18 and 75 (If taking our insurance, your contract must end by the time you reach 78)
Where can i find out more about Benefit in Kind tax (BIK)
The best place to visit is HMRC BIK Calulation pages, You'll need some info on the car such as P11d, fuel type and Co2 emmissions. https://www.gov.uk/tax-company-benefits/tax-on-company-cars
What is the impact on my existing benefits from the state or employer?
It is also important to note that salary sacrifice may also affect your future pension contributions and the amount you receive upon retirement. You should check with your pension provider to understand how salary sacrifice may impact your pension plan.
Additionally, salary sacrifice may have implications if you are currently repaying student loans or for those with private health insurance plans. It is important to consider all potential impacts before making a decision to participate in a salary sacrifice scheme.
In summary, while salary sacrifice may offer some benefits in terms of reducing taxable income, it is important to carefully consider the potential impacts on entitlements to benefits, pension contributions, and other financial obligations before making a decision to participate. Seeking independent advice may be beneficial to fully understand the impact of salary sacrifice on your individual circumstances.
What happens to Salary Sacrifice Cars if i take maternity leave?
You will not be required to return the vehicle during this period as it is considered a non pay contractual benefit, and therefore must continue during your abscence.
It is important to note that if you are taking unpaid maternity leave, your employer may require you to make arrangements to pay for any salary sacrifice benefits during this time. This is because unpaid leave is not considered to be a period of active employment, and therefore any benefits that are provided as part of your employment contract may not apply.
It is also worth noting that if you decide to opt out of a salary sacrifice scheme during your maternity leave, you may need to wait until your return to work before you can rejoin the scheme. This will depend on the rules and procedures of your employer's scheme, so it is important to check with them before making any decisions.
Overall, it is important to keep your employer informed of your maternity leave plans and any changes to your employment status so that you can ensure that you are receiving the correct pay and benefits during this time.
How can i start the process of enrolling my business in a Salary sacrifice Scheme?
Please contact us on 0116 4030235 or Hello@ready2lease.co.uk and we will guide you through the first steps of the process