OSV

Have you heard of Salary Sacrifice? Did you know employees could save up to 40% in taxes?

The two words ‘salary’ and ‘sacrifice’ together aren’t usually something an employee is eager to hear, however, there is a multitude of benefits. Discover the benefits of salary sacrifice, as well as the most frequently asked questions here in our Salary Sacrifice Hub.

So what is a Salary Sacrifice Car Scheme?

Essentially it is when you deduct a small portion of your wage and in return, you get a brand-new car.

This is usually a lease finance scheme, so whilst you can drive it around to and from work, park it at home and use it for personal trips on the weekend – it is the property of the lease company which has an agreement with your employer.

OSV’s Salary Sacrifice Hub has everything to help you, from explaining what salary sacrifice is, what it means to an employee, what is means for an employer and even content around how to convince your boss it is right for the company.

Not only do you have all this information at your fingertips, but you also have our team of experienced Salary Sacrifice Vehicle Specialists at the end of the phone to answer your questions and chat through your options. So, what are you waiting for? Start saving today.

BENEFITS OF SALARY SACRIFICE

Salary Sacrifice

With a Salary Sacrifice Car Scheme you are paying less in taxes and National Insurance as the cost of the vehicle comes off of the employee's gross salary. It also means as an employer your NI contributions may reduce.

Salary Sacrifice

Setting up and offering a Salary Sacrifice Car Scheme for your employees is an attractive incentive for new and existing team members as they will be getting a car for less.

Salary Sacrifice

The great thing about a Salary Sacrifice Car Scheme is that the agreement includes servicing, maintenance, and road tax.

Salary Sacrifice

Getting your new vehicle through a Salary Sacrifice Scheme gives you access to vehicle fleet discounts.

FAQ

What is Salary Sacrifice?

Salary sacrifice is an incentive promoted by employers to either retain or gain new employees. It also allows significant benefits to the employee.

The scheme involves taking a portion of the employee’s salary in order for them to gain something in return.

This can vary from many products and services such as healthcare, childcare, gym memberships, and more. The most popular scheme is a salary sacrifice car scheme.

How does Salary Sacrifice Work?

It works by taking a portion of the employee’s salary in order for them to gain something in return such as healthcare, childcare, gym memberships, and more. The most popular scheme is a salary sacrifice car scheme.

Here is a working example:

John wants an electric car. His salary is £36,000 per year or £3,000 per month.

After-tax his take-home pay is £2,350.79 a month (the tax year of 2022).

If he leases an electric car worth £300 a month, without salary sacrifice, he will be left with £2,050.79 a month after tax.

What if he leases an EV through salary sacrifice?

The benefit here is he can pay the £300 (cost of EV) before tax is deducted.

So, you do not pay income tax or national insurance contributions on this £300.

If he leases an electric car worth £300 a month he will be left with £2,150.54 a month after tax.

That is a total saving of £99.75 a month with salary sacrifice! So, you are only paying £200.25 a month for a brand-new car worth £300 per month.

How does salary sacrifice work when Leasing a car?

When you lease a car through salary sacrifice, you are essentially getting a car for less!

You deduct a small portion of your wage and in return, you get a brand-new car.

This is usually a lease finance scheme, so whilst you can drive it around to and from work, park it at home and use it for personal trips on the weekend – it is the property of the lease company which has an agreement with your employer.

Are Salary sacrifice car schemes worth it?

Yes, as you get a new car costing you less than you what you could get outside of the scheme which also includes servicing, road tax, and maintenance. All of which is paid before tax and national insurance deductions from your salary.

How does salary sacrifice work for electric cars?

The general rule of thumb is lower emission vehicles ensure a lower Benefit-In-Kind rate, which is the tax you pay on your salary sacrifice company car.

So, electric cars are fantastic to opt for, as they are zero emissions and do not have an engine just an electric motor. It’s also another reason why they are a popular choice when employees select their car through the scheme.

What are the benefits of salary sacrifice?
  • With an electric car salary sacrifice scheme, a home charger can be included with your lease
  • A brand-new vehicle that exists within the scheme
  • Pay less tax and National Insurance (NI)
  • Access to corporate discounts which means a reduced vehicle cost
  • The agreement includes maintenance, servicing and road tax
  • Easy fixed monthly payments with no credit check
What are the disadvantages of salary sacrifice?

This will depend on your earnings and what an employer is prepared to offer you.

The main priority for an employer is that the scheme will not take the employee’s salary below the national minimum wage.

You should not enter into a salary sacrifice where your take-home pay would not comfortably cover your other commitments.

When is salary sacrifice not worth it?

A salary sacrifice scheme is not worth it:

If it puts your salary below the national minimum wage
If it takes your take-home salary below what you need to comfortably live
Because salary sacrifice works best with electric vehicles and if you don’t have access to a charging point, it may not be the best solution for you
If you intend to leave your existing employer you will have to give the car back and therefore you may be liable for early termination costs

Who can salary sacrifice a car?

If you are an employee working at a company where a salary sacrifice scheme is available, and your wage allows you to partake in the scheme, then you should be able to salary sacrifice a car.

Can salary sacrifice reduce tax?

Yes it can reduce tax on your personal contributions as you are paying tax on a reduced salary.

Will salary sacrifice affect my pension?

As you are reducing your salary, if your pension contribution is based on a percentage of your salary then your monthly contributions would reduce pro-rata in most cases.

Do I own the car?

Yes, which is why it is such a great perk to take advantage of!

Does it have to be an electric car?

We would recommend you opt for electric as you would be maximising the benefits of the scheme.

What should you consider before using a salary sacrifice scheme?

Take-home pay will be reduced which could affect how much you can borrow, for example, if you plan to get a mortgage.
You pay less NI which may affect your state pension; however, this will only happen if your reduced salary takes you beneath the threshold to make NI contributions.
Strictly, employees have no right to buy the vehicle and will never own it.
If the employee’s driving licence is revoked due to health, they either must continue payments or they can be covered by insurance. It’s worth looking into getting this covered.
Although you pay less tax on your salary, you still must pay company car tax on your vehicle. If you are driving a low-emissions car, like an electric then this will be a much lower tax band compared to that of petrol or diesel.

At present (2022) EV drivers pay a 2% benefit-in-kind rate, which is 2% of the vehicle cost.

If you were to opt for a petrol or diesel car, this could go right up to a 37% benefit-in-kind (BIK) rate.

How does minimum wage and salary sacrifice work?

If after the salary deduction, your wage has been taken to below the national minimum wage, then you will not be able to take part in the scheme.

Even if you just about make it, you should always ensure you have a salary that is comfortable enough to live on whilst considering the cost of your own personal lifestyle.