Salary Sacrifice Car

dannyrst

Hi all,

Been looking at salary sacrifice car scheme at work and heard from someone who has one that after the first 12 months from delivery and the beginning of the sacrifice, their tax code has changed so they pay tax on more of their income.

I don't understand this as I thought the whole point was that you don't pay NI or Income tax on the portion of your wage that is deducted to pay for the car? If your tax band is lowered, surely you are then effectively paying the tax anyway?

Could anyone shine light on this?

Cheers

sheramber

You don't pay NI on the amount of salary sacrifice.

Hpwever, HMRC consider your car is a company car which you have the benefit of for private use.

Therefore you are taxed on that benefit.

https://www.gov.uk/tax-company-benefits/tax-on-company-cars

DragonQ

When I looked into this it was a waste of time. No cheaper than private deals and almost all of the money you save on in tax and NI you have to pay in tax on the benefit anyway. Even in the 40% tax bracket, the amount of tax you pay for the car itself goes up so you still don't save much.

If you really want a new car every 3 years it's worth looking into because it might work out a bit cheaper than getting a private PCP deal, but don't think it's always cheaper.

Shimrod

You should also be aware that the government is consulting on changes to salary sacrifice, and car schemes such as the one you describe may not qualify for salary sacrifice in the future. https://www.gov.uk/government/consultations/salary-sacrifice-for-the-provision-of-benefits-in-kind

As it is only in the consultation stage, no one has any idea of what impact this may have or how a transition might take place if the rules change - but be aware opting for a salary sacrifice car now may cost you more in the future. It might be worth checking what your options would be should such a situation occur.

scotsbob

Shimrod wrote: »

but be aware opting for a salary sacrifice car now may cost you more in the future. It might be worth checking what your options would be should such a situation occur.

If you have a pension linked to salary then sacrificing some of your salary will impact on that. The main advantages are for your employer as they pay less salary, therefore less employers national insurance contributions and less into the pension scheme.

Shimrod

scotsbob wrote: »

If you have a pension linked to salary then sacrificing some of your salary will impact on that. The main advantages are for your employer as they pay less salary, therefore less employers national insurance contributions and less into the pension scheme.

I am not sure what your point is. Pension contributions, childcare vouchers and the cycle to work scheme are specifically excluded from the consultation. Everything else, such as the car scheme described above could potentially become exempt from salary sacrifice - meaning you won't get the benefit of NI or tax savings that currently make such schemes attractive.

dannyrst

Thanks for the replies.

I'm fully aware of current situation regarding salary sacrifice and will be keeping an eye on this. I'm also aware the amount of pension I will be contributing would drop.

The monthly price includes insurance, maintenance, tax...everything except petrol. There is no initial deposit and the net monthly cost (Cost - NI Saving - Tax Saving + BIK) is similar to the monthly payments on a normal lease deal.

I'm specifically wondering if anyone is aware of this sort of thing changing your tax code? I don't really understand tax codes, other than that they differ for self-employed people and they identify how much you can earn tax free each year.

DragonQ

scotsbob wrote: »

If you have a pension linked to salary then sacrificing some of your salary will impact on that. The main advantages are for your employer as they pay less salary, therefore less employers national insurance contributions and less into the pension scheme.

Are you sure? My employer offers lots of tax/NI-saving benefits but regardless on which ones are taken, the pension contribution is based on the gross salary before the benefits are taken off.

There may be a difference between what my employer offers and specific "salary sacrifice" schemes though.

Bigphil1474

Re tax codes, I have a reduced tax code due to being classed as an essential car user for the last 20 years. From what I can tell, the SS cars scheme usually means that the car you get is classed as a company car, so there will be a benefit value allocated to that, which would mean your tax free allowance is reduced so that you pay more tax, but on a reduced pre tax wage. The tax code is reduced based on how much the benefit in kind is valued at, and is usually done at the end of the year for the previous year. My tax code hasn't stayed the same in the last 20 years, as it goes up and down depending on how much mileage and lump sum I receive each year from my employer - if it goes up, my tax code goes down and vice versa. Essentially, it's a way of being taxed on untaxed payments from work (My mileage and lump sum payments aren't taxed at source)
One note of caution on the SS cars - I looked into it as I was planning on getting another car, and the costings looked good. Unfortunately, my employer told me that instead of getting the current 40.9p per mile for driving at work, it would go down to 11p per mile, as they said it is a company car even though I'd be paying for it. So whilst I was looking at a good deal initially, it would have cost me about £75 a month straight off, plus a fortune on my pension - based on some rough calcs, I'd have lost about £1500 a year on my final pension (I pay 6.5%, but my employer pays 14% ) based on a continuous agreement. Over 3 years, it won't be as much. There was also some weird stuff about it going on for four years no matter how long the SSS was in place, but I'd given up by then.

bogues

When your income goes down through car salary sacrifice, can you then be rewarded by HMRC by extra tax credits?

Bigphil1474

It's a salary sacrifice scheme i.e. sacrificing your salary, and tax credits are based on income - even if your gross salary is nominally reduced, you have to add the value of the car to your reduced gross salary before they calculate any credits anyway. Heads they win, tails you lose.