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 less gross salary, so savings can be made on income tax and National Insurance. Keep in mind though, 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, click here to see how we can help.
How Does a Salary Sacrifice Car Scheme Work?
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 currently the Benefit-in-Kind (BiK) rate for EVs is 2%, and the Government has outlined that it won’t increase above 5% until after 2028.
Salary sacrifice cars allow you to offer a no-cost car benefit to some or all of your 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 are ready to learn about you and your business. We’ll look at your existing car benefit arrangements, listen and understand your employee car benefit objectives, before designing an optimised fleet solution for your business.
Discover our approach to providing your business with a salary sacrifice car scheme.
How your employees participate in a salary sacrifice scheme
1. Employees choose a vehicle from a choice list controlled by you. Selection, ordering and delivery all managed on the CBS Portal.
2. The vehicle is leased to your business and you provide it to your employee as a company car. Rental includes maintenance, insurance can be added.
3. 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.
4. The renewal process is easy and straightforward. At the end of term, employees can choose a brand-new car.
Keep your employees happy by giving them an affordable way to drive an EVs, help them on their green journey, and remove the hassle of sourcing insurance or organising a maintenance package.
Tax Efficiencies of a Salary Sacrifice Car Scheme
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 though, and therefore the appropriate tax for the benefit is applicable. For you 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.
Electric Car Salary Sacrifice Schemes
With the low BiK rate for EVs, which is just 2% until 2025, and won’t increase above 5% until after 2028, electric cars are the most cost-efficient vehicles for salary sacrifice car schemes. You can choose whether your employees simply pay the 2% BiK for their salary sacrifice electric car, or whether they pay more towards the life costs of the vehicle.
Either way, you’re still providing an affordable and accessible way for your employees to drive a brand-new EV.
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, the way in which your employees pay for their benefit. For a traditional company car, your employees pay the appropriate BiK tax dependent on the car emissions and P11D value of the car. While for salary sacrifice, as we’ve mentioned throughout this guide, your employees give up some gross salary in exchange for a car and they pay minimal BiK tax if they choose an 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 got a question about salary sacrifice cars? See if the answer is below in our frequently asked questions.
What cars are available with salary sacrifice?
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 on 0300 200 3300.
Who owns the car after salary sacrifice?
Car Benefit Solutions is the legal owner of the vehicle.
Does salary sacrifice show on payslip?
Yes, your employees see the salary sacrifice as a deduction from gross pay on their payslip.
Do you get taxed before or after salary sacrifice?
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 emitting 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 on a salary sacrifice car?
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 credential?
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.