A salary sacrifice scheme is where an employee has a portion of their monthly salary deducted from their pay in return for an agreed non-cash benefit. These are growing increasingly popular in the UK and one benefit that is becoming more widespread is a salary sacrifice car scheme. This is where an employee who doesn’t qualify for a company car can enjoy a new car under a lease scheme, with the monthly lease payment coming from their salary.

Of course an employee can choose a non-cash benefit that most closely suits their lifestyle, but a car scheme is amongst the most popular for several reasons. The most enticing benefit is the tax implication.

Tax benefits of a salary sacrifice car scheme for the employee

There are a number of non-cash benefits which were given special dispensation by the UK Government from 6th April 2017. From that date employees who agreed a salary sacrifice scheme for the following:

– Increasing pension contributions
– Employer supported childcare
– Cycle to work schemes
– Ultra-low emission cars (less than 75g/km CO2)

were able to have their salary portion deducted BEFORE it was subjected to income tax and national insurance payments. So this portion is now deducted on gross pay, and hence the real cost to the employee is reduced. This means the amount of income tax and national insurance that you pay is also reduced.

Other benefits of a salary sacrifice car scheme to employees

While the tax benefit is a major one to many people, there are a number of other benefits to be considered:

– Cheaper – In many cases an employee can benefit by choosing a new car using their organisation’s corporate purchase terms. This gives them access to better and cheaper vehicles than if they were arranging this deal privately.

– New cars – You will always be driving a new car (at the end of the lease term you simply change your vehicle for another new vehicle) and therefore can benefit from technological advances in electric vehicle (EV) range, in-car tech and safety features.

– Save costs – Driving a new car will help save on public transport costs for commuting to work.

– Lifestyle changes – Most employers allow an employee to adjust the terms of their salary sacrifice payment if their lifestyle changes, ie. if a partner is made redundant or becomes pregnant etc you can reduce your payment made accordingly. Of course this would not change any financial commitments you are already signed up to.

– Flexibility – You are able to choose a vehicle and therefore a monthly payment that suits your lifestyle and accommodates other financial commitments you have on a monthly basis, so that you are not over-stretching yourself.

– CO2 emissions – By driving a zero-emission vehicle you are reducing your personal carbon footprint.

– One payment – All your motoring costs will be covered under one payment, so in addition to the car itself, your monthly payment will cover service and maintenance, MOT, breakdown cover and road tax.

Speak to your employer about salary sacrifice car schemes and then let
Pink Salary Exchange help you find the right deal to suit your circumstances. And before you know it, you could be driving your dream car, but under financial conditions that suit you and provide lots of other benefits.