Discover what a salary sacrifice car scheme is and how it works, as well as the benefits it could bring to your business and employees.
A salary sacrifice car arrangement is an agreement between you and your employee, in which they accept a lower taxable salary in exchange for a benefit. In this case, the benefit is a car.
Your employees receive a lower gross salary, allowing for savings on income tax and National Insurance. Keep in mind that when providing a company car, you also have to pay Class 1A National Insurance Contributions (NICs) for each car you provide to your employees.
In this guide, you’ll learn about how salary sacrifice works for a car, the tax efficiencies of offering a salary sacrifice car scheme, the benefits of electric car salary sacrifice arrangements, how salary sacrifice vs company car looks and frequently asked questions.
If you’re a UK-based business looking to provide your employees with a salary sacrifice car scheme, view our solutions to see how we can help.
Why choose a salary sacrifice car scheme?
Salary sacrifice schemes can be mutually beneficial for both your business and your employees. It’s an attractive benefit when it comes to Electric Vehicles (EVs), as the current Benefit-in-Kind (BiK) rate for EVs is 3%, and the Government has outlined that it won’t increase above 5% until 2028.
The scheme s allows employers to offer a no-cost car benefit to some or all of their employees, creating tax-efficient savings on EVs.
Remember, to generate savings on salary sacrifice cars, they must have under 75g/km of CO₂ emissions in accordance with the optional remuneration arrangement (OpRA) established in 2017.
Our team of experts is ready to learn about you and your business. We’ll examine your existing car benefit arrangements, listen to and understand your employee car benefit objectives, and design an optimised fleet solution for your business.
Discover Our Approach to providing your business with a salary sacrifice car scheme. Or read our blog: Which Car Solution is Right for Your Fleet? to find the best solution for your business.
Four simple steps on how salary sacrifice works for a car
- Employees choose a vehicle from a list controlled by you. Selection, ordering and delivery all managed on the CBS Portal.
- The vehicle is leased to your business, and you provide it to your employee as a company car. Rental includes maintenance, and insurance can be added.
- Your employees sacrifice some of their salary in exchange for the car benefit. Tax and Class 1A NICs savings for your employees, and at least cost-neutral for you.
- The renewal process is easy and straightforward. At the end of the term, employees can choose a brand-new car.
Keep your employees happy by giving them an affordable way to drive an EV, helping them on their green journey, and removing the hassle of sourcing insurance or organising a maintenance package.
How is it tax-efficient?
Your employees sacrifice a fixed amount from their gross salary in exchange for a company car, and as a result, they pay less income tax and NICs. A salary sacrifice car scheme is an efficient arrangement that reduces the net monthly cost of a company vehicle for your employees. With their taxable salary amount reduced, you also pay less Class 1 NICs.
This type of employee car benefit is classed as a company car and therefore the appropriate tax for the benefit is applicable. For your employees, this is BiK tax, but with the low BiK rate for EVs at present, this is a minimal amount. Class 1A NICs for you as the employer are also payable.
Our blog: The Tax Implications of a Company Car explains the tax complexities for fleet car schemes.
Electric car low BiK rates
With the low BiK rate for EVs, which is currently just 3%, and won’t increase above 5% until 2028, electric cars are the most cost-efficient vehicles. You can choose whether your employees simply pay the 3% BiK for their salary sacrifice electric car, or whether they pay more towards the life costs of the vehicle.
Either way, you’re still offering an affordable and accessible option for your employees to drive a brand-new electric vehicle.
Salary Sacrifice vs Company Car
Both salary sacrifice cars and business leasing cars are classed as company cars from HMRC’s point of view. However, there are some differences, for example, how your employees pay for their benefit.
For a traditional company car, your employees pay the appropriate BiK tax, dependent on the car’s emissions and P11D value of the car.
For salary sacrifice, as we’ve mentioned throughout this guide, your employees give up some of their gross salary in exchange for a car, and they pay minimal BiK tax if they choose an electric vehicle (EV). As an employer, you pay Class 1A NICs as both salary sacrifice cars and business leasing cars are classed as company cars.
In both cases, the car owner is Car Benefit Solutions, and we lease the vehicles to your business. Insurance and maintenance are generally included, and we can provide the full package. However, it’s up to individual employers to decide what level of benefit they want to provide.
Salary Sacrifice Scheme FAQs
Still have a question? See if the answer is below in our frequently asked questions.
What cars are available?
Electric Vehicles are the most efficient cars for salary sacrifice schemes. However, as an employer, you’re in control of the choice list you offer your employees. You also need to ensure that a salary sacrifice car doesn’t impact an employee’s National Minimum Wage.
Does HMRC need to know about a salary sacrifice car?
It’s recommended that your employees notify HMRC that they’re driving a company car, or when they change their company car so that they can update their records and tax code without delay.
They can update HMRC online here, by downloading the HMRC app or calling 0300 200 3300.
Who owns the car?
Car Benefit Solutions is the legal owner of the vehicle.
Does salary sacrifice show on a payslip?
Yes, your employees see the salary sacrifice as a deduction from gross pay on their payslip.
Do you get taxed before or after?
Tax for your employees and the business will be taken after salary sacrifice, making savings for both parties.
Are salary sacrifice car schemes worth it?
If you’re in the market for a new electric or low-emission vehicle and are considering leasing options, a salary sacrifice car scheme could be a more cost-effective solution. If you want predictable maintenance costs included in your fleet package and you want to be free of the burden of car ownership, again, a salary sacrifice car scheme can offer both.
Can mileage be claimed?
Yes, employees are required to record and report any business miles they travel each month.
Introduce a Salary Sacrifice Car Scheme to your Business
A salary sacrifice car scheme is a way to offer a no-cost car benefit to some or all of your employees, creating tax-efficient savings on EVs.
Do you want to…
– Offer an optional car benefit to some or all staff?
– Boost your green credentials?
And are you…
– Ready to make the switch to electric?
– Happy to complete some admin on P11D reporting and National Minimum Wage checks?
If the answer is yes, get in touch today.