What is Salary Sacrifice?
Salary sacrifice is when you give up a portion of your before-tax salary for a non-cash benefit. These can come in different shapes and sizes, like bikes or childcare vouchers; our example would be for a leased car. It will depend on whether or not your employer would consider offering this as a benefit to you.
With the meteoric rise of the Electric Vehicle (EV) and Ultra-Low Emission Vehicles (ULEV), there has been a sharp increase in salary sacrifice to lease new vehicles. Mainly down to the low benefit-in-kind tax they currently attract. When done correctly, an employer arranged salary sacrifice scheme can be a highly tax-efficient method of leasing a new electric car, for both parties.
The benefits of personal car leasing
Personal car leasing has become an increasingly popular way to drive a new car in the UK. Growing numbers of people appreciate the benefits and cost savings that a personal lease can bring, whilst also cutting motoring costs.
Salary Sacrifice for the Employee
It's hard to cover all the bases with this kind of scheme, there are things to be aware of, and it can seem daunting at first, but FVL can help.
Once you have chosen your vehicle delivered, your employer will take the regular monthly deduction from your top-line salary. This would typically last for the contract duration, and the figure would remain the same throughout, so you can enjoy fixed-cost motoring at its best.
Initial Savings
We'll start with how you are currently funding your vehicle if you have one. You may be using a hire purchase or some form of loan and paying interest on that. Or you might have bought it outright in cash or used some other funding method, like a car lease deal or PCP. But the chances are that you paid tax on the money you used to pay for it first. With salary sacrifice, you sacrifice the money to pay for the vehicle before tax and national insurance are taken. There is no large initial outlay to make it easier to begin your electric car lease. Upon receipt of your new salary sacrificed EV, you may choose to sell your current car, bonus.
More Benefits
Finance, road tax and maintenance are all included in a fixed monthly cost that enables cost-efficient budgeting with only one initial payment. As the car lease agreement is with your employer and not you, it will not go on your credit record. Leasing agreements usually last around three years (but can go between 2 and 4), so you can regularly be in a brand new car with all the latest tech and safety equipment.
Looking after your new car
Typically, your new car will be fully funded and include your servicing, road fund licence (road tax), maintenance, MOT's, breakdown and tyres. All you would need to do is charge it (and or fuel it if a ULEV), and repair any unwanted bumps or scrapes. You will be given a 'driver helpline' number for your lender that you would use for any maintenance requirements. Your employer will need to ensure the vehicle is under their fleet policy and might arrange with you about the cost of this in your contract amendment.
End of contract
Once the contract ends, the vehicle is handed back to the vehicle lender. If the mileage is equal to or below what was agreed, and the condition meets the BVRLA fair, wear and tear standard, there should be nothing further to pay. Typically your salary sacrifice arrangement with your employer would end, and you would be free to stop, or begin again with another new vehicle.
Salary sacrifice for the employer
Benefits
Although there are many benefits in leasing a vehicle, see our 'Business Car Leasing' page, especially those with CO2s of under 50g/km, First Vehicle Leasing always recommends that you speak with your account before proceeding.
Salary sacrifice adds an additional element of complexity, and although it can be very beneficial if done correctly, extra effort should be undertaken to understand all of the details.
Offering Incentives
Being able to save your employee's tax on a brand new vehicle is an excellent incentive. It is sure to appeal to prospective employees and your existing staff. You can use our handy salary sacrifice ready reckoner to indicate how prospective vehicles might impact you and your employee and the relevant savings you could make.
Once you decide to move forward with a salary sacrifice scheme, our agents can offer your employees our full range of EVs and Plug-In Hybrids to choose from.
Initial Outlay
Initial cash outlay is kept to a minimum. A brand new car fully maintained and delivered to your employees' home or work address. You will need to insure the vehicle, and FVL charge a credit brokering fee, you can decide if you cover this cost or pass it on through the contract amendment.
Administration
When your agreement is set live, administration can be kept to a minimum; your staff will be given a dedicated 'driver number' for all maintenance-related issues, like servicing, MOT's or tyre replacement. This is ideal from a fleet management perspective, but it also means that you have far fewer invoices to worry about monthly. The road fund license is taken care of, too, meaning you can concentrate on running the day to day.
Maintenance and Duty of Care
It helps with your duty of care to have brand new and well-maintained vehicles in the fleet. All of our salary sacrifice vehicles come with the full maintenance package too. This maintenance cost is fixed, which helps with budgeting for unexpected repairs or services. It's worth noting that Vat registered companies can claim 50% of the Vat back on the vehicle element and 100% back of the Vat on the maintenance element too.
