Salary Sacrifice Scheme

Sir_Handel

Just after a bit of advice really.



Work has just introduced a salary sacrifice scheme for cars and I am highly interested in taking advantage of a more fuel efficient car.



For the full works, a car with great mpg, tax, insurance, servicing, not MOT worries, new tyres when needed….im looking at £269 a month.



Maintaining my present car per month with insurance and tax is 90 a month and my 200 per month fuel bill should be halved meaning the new car will only be costing me 79 a month, with great piece of mind.





So…



If I am currently earning Gross per month 2066 with a High Cost Area supplementation of 413.32 and the deduction from salary will be 269, am I missing anything? I believe that the extra tax for BIK (I think its BIK…) is included in this 269 also.



What would I be looking at walking out with after tax?



Will my PAYE and NI also be lower in my pay packet?



I don’t care who knows what I earn here as none of you know me haha, but the example is…



In

Basic Pay 2066.58

High Cost Area 413.32



Out

PAYE 329.20

NI A 297.59

Car Parking at work 29.51

Car Park VAT 5.90



Net Pay – 1817.70





So – how should I expect that to differ when payments for the car start coming out?



I presume that £269 will be removed from the 2066.58 and my High Cost Area will drop to reflect it, and then my PAYE and NI deductions will also be less?



Am I doing this right? Sorry if it’s a load of jumble and I do really appreciate your help.

=rizla=

Sir_Handel wrote: »

I presume that £269 will be removed from the 2066.58 and my High Cost Area will drop to reflect it, and then my PAYE and NI deductions will also be less?

I've no idea ref the car sacrifice scheme, BUT if it works the same as the childcare salary sacrifice scheme then the 269 will be taken off the total salary ie 2479.32 - 269 = 2210.32, you're then taxed/NI'ed from this figure.


The childcare scheme at the maximum £243 saves me about £80/month.


As a sceptic i'd also see what deals you can get on the car you're looking at independently.

SmellyPetrol

this might help u
http://www.alternativeroutefinance.co.uk/salary-sacrifice-cars#.VO9KDPmsWSo

and http://www.leasedrive.com/pages/mycar-salary-sacrifice.aspx

bowlhead99

Company car schemes can work a bit differently from other types of benefits.

So, firstly you have a lower take home salary because you have a lower gross salary, having sacrificed a slice of it. If you were earning a gross amount of £2500 before (including the highcost area bit) then the salary will drop from £2500 to something lower.

This means the PAYE and NI will fall accordingly because you are only now being taxed as if you were earning say £27000 or whatever the amount you pay for the car is going to do to your headline earnings. So, the hit to your headline earnings is maybe £270 a month, bit more than £3k a year, but you would have been paying tax and NI on that anyway so your net pay will not be falling by as much as £3k a year from that 'sacrifice' part of the process.

But then the taxman sees that instead of giving you £30k of taxable cash, they are giving you £27k of taxable cash AND use of a nice shiny new car. What you or your company pay for the car each month is not what they care about - instead they give it a 'taxable benefit' value by looking at the list price of the car, its fuel type and its emissions. You can run a sample car through their checker here: http://cccfcalculator.hmrc.gov.uk/CCF0.aspx.

So, lets say the 'value' of that car according to HMRC is £5000. Effectively you are getting £27k cash and £5k benefit for a new total of £32k, in HMRC's eyes. The extra £5k of value will be stuck through your payslip calcuation resulting in a greater notional gross amount and a new, greater, tax charge.

So, although you are paying less tax on one hand because of the lower cash salary, you are paying more tax on the other, because of the new big benefit, and actually the total you're being taxed on is £32k instead of £30k. The combination of increasing your tax bill but reducing your headline cash is going to mean that overall your take home pay drops by more than the monthly price of the car.

Of curse, this will depend on what type of car you get. Generally a city car that's more frugal with low emissions is going to be seen by HMRC as less of a benefit than if you get a big limo with a V12 engine. You can have two cars with same list prices but different notional tax benefits because HMRC incentivises the environmental ones.

You mention this figure of £269 that you are sacrificing. I reckon that is just the headline deduction from gross salary and doesn't include what tax you save by not having the cash, but it also doesn't include the new tax that you are paying on the notional value of the car. The reason I'm guessing this is that if they were going to try to give you a net figure they would have to know what tax band you were in, because the amount of NI and tax you save on reduced salary and then the amount of new tax you pay on the extra car, are going to be dependent on your tax bracket - the effect on takehome depends on the tax and NI rates you are currently paying.

As an aside, I guess you're getting that high cost area allowance as some sort of percentage uplift on your basic wage? You were talking about that reducing. But you might find that salary sacrificing to get paid 'in car' instead of 'in cash' does not affect your overall benefits. Back in the day when I had salary sacrifice for a car, the price of benefits came off the main salary but the rest of my overall package didn't change (same pension, same city weighting, same bonus etc).

HTH

jimjames

Also bear in mind what you would do if the loophole is closed. There are many of these types of scheme and if the government need to raise more money it could be an easy candidate to be stopped.

daveyjp

Your employer should provide you with full pros and cons of salary sacrifice as it can affect supplementary payments, work pension, state pension, benefits etc etc.

How it affects any work pension should be the first question you ask. Some continue to base pension contributions on gross salary, some on net.

Sir_Handel

Thanks for the help all!

Still weighing it up here lol