Salary Sacrifice Car Schemes - Good or Bad?

K1RST1E_2

Apologies if this is in the wrong section!!

Hi,

The company I work for has just released a salary sacrifice car scheme whereby I 'surrender' a portion of my monthly salary for the lease of a car. You are tied into an agreement for 3 years and at the end of the agreement, you can either give the car back, get another vehicle or buy the current car. It's a bit like car finance, just pre-tax.

Is this a good thing or not? I've looked at quotes and as an example, I could be paying £355 a month out of my net monthly pay. I'd be doing this for 3 years and then at the end of it, I could still have another £7000+ to pay at the end if I wanted to keep the car. The policy says that you 'may' get the opportunity to buy the car at the end which makes me a little dubious as I could be wasting £355 a month for nothing. Also, if your spending £355 a month on a car, how would you even save £7000 to buy it at the end??

I could do with some advice please.

gadgetmind

I've done sal sac to "buy" bicycles, but HMG have specific rules that let you do this tax free. Mostly. Subject to ever-changing but always vague rules. Anyway ...

I guess this fiddle gets you a car as a Benefit In Kind, so subject to tax but saving both employer's NI (13.8%) and your NI (2%). Well worth doing if (and only if) you fancied running a car in about the most expensive way possible, which is buying from new.

I run "expensive" cars in the shape of an Audi A8 Quattros. I buy them at three years old for about £18k (they are £55-£60k new!) and then aim to run them for at least five years, so typically £3k=£250pcm in depreciation. However, they are tough as old boots, so I ran the last one for ten years, during which nothing big went wrong, and I therefore only had £1600pa=£133pcm in depreciation. It was a 4.2l petrol engine, so drank fuel, but my latest is a 3l diesel, so much better economy.

I like luxury motoring but would I pay £355pcm for it? No, probably not, as there is no need. Exactly how fancy a car is that £355pcm (plus £7k down the line) getting you? Do you really need it? Do you need the registration plate to have the latest and greatest letter/number?

Get a "few years old" quality car, find a good indy garage (and/or do simple stuff yourself) and you'll save a packet.

flashg67

There is some peace of mind having a new car with a warranty, and the payment will include maintenance, tyres, insurance etc. (I have colleagues who have taken this out just beacause the insurance covers the whole family, including those risky teenage drivers - this in itself can save a fortune if you're prepared to let your kids use your new car!)

You might find this of use - http://www.fleetnews.co.uk/costs/salary-sacrifice/

jimjames

Really depends if you want a new car. Personally I don't buy the argument that it is cheaper to run a new car than old when depreciation is taken into account. My current car cost just over £3k two years ago and would fetch much the same now. No costs other than routine servicing and an exhaust (total £500 in 2 years) and its as economical as a Toyota Prius. No monthly loan repayments means I can save that money each month instead and with virtually zero depreciation has lost me nothing in the 25,000 miles I've driven.

If you want a new car then go for it but from what you said you also won't be able to save money when you're paying for it. From the figures you are best assuming it is a lease that covers all your costs to run the car and that you will have nothing at the end when you hand it back. On the face of it paying a fixed amount doesn't sound too bad if it covers everything to do with running a brand new car but it depends what sort of car it is for that money. Out of interest what do you have now and would it generate money selling it to get this new one?

[I've also done the bike scheme which was great but £250 for a £500 bike was a good deal, however the company running the scheme are probably the winners overall!]

satchmo1

The only reservation I would have is that Fleet News are hinting that there will be HMRC changes in terms of salary sacrifice rules for company cars sometime this year.

yorkiebar

For complete peace of mind I think it's a good deal. My company has recently started up such a scheme and I am tempted. Insurance/servicing/breakdown/tax/tyres etc etc all inclusive.

gadgetmind

I just don't buy the "peace of mind, all included, nothing extra" argument. All you really guarantee is spending 2-3x as much per anum as you'd spend buying the same car at 3 years old and running it yourself in an economical way.

However, I *worship* people who buy new cars and the discard them when barely run in at three years old. These are the people that let the smart people enjoy luxury motoring for the same money as more status aware people spend on more mundane vehicles.

asc99c

I'd agree with the consensus here really. What else can you expect when considering buying a brand new car on a money saving forum! It sounds like this scheme can save a little bit on tax, so it probably isn't a bad way of buying a new car. But cars lose so much money in the first few years, yet they're very well built these days (most of them anyway) and progress overall is slow - it's not like a brand new car is fundamentally different from a three year old one.

£355 PCM for 3 years, plus £7000 is £19,780. There is a fantastic array of cars for less than that on Autotrader. Even with the running costs of stuff like Porsche 911s, Merc SL55 AMG etc you can still pay less than that!

kidmugsy

We've found that the strategy of buying a car and keeping it for 15 years - or until stolen - works very well.

gadgetmind

We bought a Mazda MX-5 at 3 years old and kept it for 15 years. We then flogged it to a guy at work for £2k and it's still going strong even though it's about to hit its 20th birthday. We also kept one Audi A8 for over ten years, and it hit about 15, though did need a few oil breathers changing at that stage.

Meanwhile, my father in law buys brand new Renault snoozemobiles, runs them for three years, and then trades them in for another. He reckons the massive depreciation is made up for by the huge discounts he gets from the (make believe) list price, but he must be losing about £5k per annum in depreciation.

I'm sure some people think I'm rich, what with having a nice house and running fancy cars. What they don't realise is that I choose to live this way rather than it being something I can actually afford.

jimjames

gadgetmind wrote: »

I'm sure some people think I'm rich, what with having a nice house and running fancy cars. What they don't realise is that I choose to live this way rather than it being something I can actually afford.

Slight Off topic but the person who is rich isn't necessarily the person who you think - the one driving the flash car bought entirely on credit or the one driving the old banger who has saved all their money and invested it instead. The old banger driver gives the outward appearance of being poor but in reality is much richer than the one spending out on credit.