Employee Salary Sacrifice Car Scheme - how does it work?

n15h

Hi, I’m looking for some guidance on how I can calculate whether it will be financially wise for me to join the employee car scheme at work.

The business I work for, provides all employees with the opportunity to join this car scheme with a well known car fleet provider. The scheme monthly price includes the cost of the car, fully comprehensive business insurance (although I do not use my car for business travel), breakdown and recovery, servicing and maintenance, tax, windscreen & glass cover, replacement tyres.

The monthly payment for the car will be taken before income tax and national insurance is paid on my monthly salary. I have to select milage and term periods – I am looking at 7000 miles a year for 3 years

The car I am interested in is a Honda Civic 1.6 iDtec SE Plus Navi that has the following stats:
MPG 78.5
CO2 94
P11D £21694.99

The employee website gives me an indicative net sacrifice quote of £329.89 for this car. However, I don’t understand how this has been calculated and whether I will be a making a financially sound decision if I join the car scheme. I had never even heard of ‘P11D’ and have no idea what this means.

Any help / guidance / calculators on this would be greatly appreciated.

I am new to this car finance thing so I apologise if anything above doesn’t make sense – let me know and I will clarify further.

Thanks in advance.

TadleyBaggie

P11D is the form that the employer send to HMRC (you also have a copy) that details the benefits an employee has had in the previous year. Such as medical insurance, company car etc.

facade

Your tax code will change so you pay an extra fortune in income tax.
HMRC need to recoup their "losses" (and then some) by what appears to be a reduction in your gross salary.

Ordinary tax payers never "beat them"

n15h

Thanks both. I'm still unsure of how this all works, however one thing is for sure, HMRC will always win.

What I'd like to do is be able to make a sound decision on whether joining the car scheme will be a good financial choice (plus the added benefit of getting a new car).

jaybeetoo

Salary sacrifice for company cars will probably be abolished next year so work out the costs of taking a company car without salary sacrifice.

https://www.gov.uk/government/consultations/salary-sacrifice-for-the-provision-of-benefits-in-kind

bod1467

I have a company car (not using salary sacrifice). The P11D value is £23,395 and my monthly BIK is near £430. I then pay tax on that value each month.

This link might help:

http://comcar.co.uk/newcar/companycar/taxcalc/

zagfles

jaybeetoo wrote: »

Salary sacrifice for company cars will probably be abolished next year so work out the costs of taking a company car without salary sacrifice.

https://www.gov.uk/government/consultations/salary-sacrifice-for-the-provision-of-benefits-in-kind

It's not going to be abolished, all they're proposing is to apply tax & employer's NI to the higher of the current BIK value, and the actual amount sacrificed. Employee would still save NI as I understand it.

facade

My understanding is limited, as I don't have the choice, but reducing salary reduces pension surely- maximising pension is something I wish I had been concerned about from day 1 of my employment.

bod1467

facade wrote: »

reducing salary reduces pension surely

Only if you're in a Defined Benefits (colloquially known as Final Salary) pension scheme. Most pensions these days are Defined Contributions ... the more you put in, the more you (potentially*) get out.

* It's stock market based, so the outcome has a portion of risk - if the market crashes leading up to your retirement then, unless you've taken action to move some or all of your portfolio to stable funds, your "pension pot" could be severely impacted.

Companies have moved from DB to DC schemes as it moves the risk from the employer to the employee.

Bigphil1474

I have a reasonable basic understanding of the SSS. The monthly cost is deducted from your gross salary - so you save by paying for the car with money that would have been tax or NI. The employer also saves by not having to pay employers NI on that amount. e.g. £300 a month, you don't pay 20% tax or 12% NI, so it only actually costs you about £200 for the car. That's not including pensions.
However, the car would normally be classed as a company car, so you receive a benefit in kind - this reduces your tax free allowance (on your P11d) - the amount it is reduced is relative to the BIK, so you have a lower tax free allowance, so would pay more tax on your net gross salary (after the car deduction but before tax). Not normally as much as the relative saving but depends on the car. Bear in mind there's no SERPS anymore, so not the same NI benefit on your works pension.
As you don't use it for business, then you won't be hit by the other big penalty which is in relation to mileage payments.
Pensions - if you pay a % of your gross salary into a works pension, because the gross salary you are being pensioned on is less, your pension payments will be less, so your pension will be less. If your employer also pays a % into your pension, their contributions will be less as well, so your pension could be affected significantly. This would apply for the duration of the scheme.
On the upside, if you were thinking of buying a car anyway, work out what this scheme 'costs; against doing your own deal privately and you know if it's good or not. If this scheme makes a saving, you could consider making additional voluntary payments into your pension so you don't lose out that way, if that's an option.
Having looked long and hard at my employers SSS, I gave it a big thumbs down, but I do get mileage payments so would have cost me much more.

jimjames

bod1467 wrote: »

Only if you're in a Defined Benefits (colloquially known as Final Salary) pension scheme. Most pensions these days are Defined Contributions ... the more you put in, the more you (potentially*) get out.

That's not strictly true. If your employer pays 10% of salary into a DC scheme then if your salary is lower you'll get less paid in.