Salary Sacrifice scheme - Electric Car

Notpoodle

So I'm looking at buying an electric car. Apparently, it can work out cheaper doing it through a salary sacrifice scheme.

I work for a small company that don't have experience with salary sacrifice schemes so before they do a load of leg work to see if it is can be done and if it will be beneficial, they have asked me to present to them my findings. I've honestly never even looked at my payslip so tax is completely new, and confusing, to me. So I’ve been doing my research.

From what I’ve been able to gather, I can sacrifice a portion of my salary, before tax, that covers the company cost of repayments for the vehicle but I will have to pay a Benefit in Kind tax (currently 16% for electric vehicles).

basically, my taxable salary is decreased by the amount I’m sacrificing but is increased by the total value of the BiK?

Here is an example based on how i think this works and on what I want to do:

£49,990.00– Cost of vehicle
16% - BiK rate for electric vehicles in 2019 = £7,998.40
£7,998.40 - is the effective ‘additional’ salary that I'm to be taxed on (Total cost of vehicle X BiK rate)
£7,620.00 - is the salary im sacrificing (company has to pay £635 a month for the vehicle so £635 X 12)
£40,000.00 – My current taxable salary
£32,380.00 – My taxable salary after we remove the sacrificed salary
£40,378.40 – My taxable Salary after removing the Sacrificed Salary but adding the additional BiK value as additional salary.

The difference in my taxable salary is the difference between my additional salary (BiK) and reduced salary (Salary Sacrifice). In this example £378.40?

So I’m taxed on an additional £378.40 and I also have my pay reduced (before tax) by the sacrifice amount?

Just how wrong am i? :rotfl:

Pennywise

What about the other costs of running the vehicle, i.e. repairs, insurance, road tax (£nil?), parking, fines, etc., that the company may also be liable for? Or is your monthly fee completely all inclusive with the company paying nothing else at all?

The company is also liable to class 1A NIC on the benefit in kind value, so they'll want that off your salary too - 13.8%.

strawb_shortcake

My friend has a car on salary sacrifice, the first one she had worked well but then the rules changed as she moved to her second car. Her tax code has been dropped right down and her car which should cost her £417pm now costs her approx £700 due to the tax code. Her HR team tell her it's correct but she's not convinced.

flashg67

I do know it is much less of a benefit than it was. eg - from the RAC - 'Prior to 2017 a salary sacrifice car scheme carried the same tax advantages as other salary sacrifice schemes however, since April 2017 the employee is now required to pay income tax on either the value of the car or the amount of salary sacrificed'

Notpoodle

Hi Pennywise, thanks for the response.

My thinking was that the company would insure and i would pick up the tab for the rest. I could also insure if that makes everyone's life easier. i'm guessing the fact that you mention them means they are all subject to BiK at various rates?

The Class 1A NIC apply to the value of the car, not my taxable income, correct? And yes, i would be picking up the bill for that too.

Is my understanding of how the salary sacrifice works correct? Taxable income - Sacrifice + BiK = new taxable income?

Thank you for your help!

Notpoodle

I saw that article from the RAC, further down the article it says

"Ultra Low Emission Vehicles (ULEVs) – cars emitting 75g/km CO2 or less – are eligible to purchase on a salary sacrifice basis and are exempt from the new tax rules in the hope to reduce CO2 emissions on UK roads"

The change in the rules could have been what is responsible for annabanana82's friend's issue.

jimmo

The usual way for salary sacrifice and cars is that the employer buys, or more commonly leases, the car and it is then provided to the employee as a company car. The employee never becomes the owner of the car unless the owner sells it to him at some time. That may well give rise to a different benefit at the time of sale
You say you want to buy the car. If you do it will not be a company car from the date of your purchase.
Also you say your employer will make repayments of £635 per month for the car. For a £49,990 car that would take 6 years and 6 months to pay off even if there is no interest charged.
Can you clarify?
If it will become a company car it would make sense for you to include insurance, maintenance, perhaps in the form of a maintenance package, breakdown cover etc because sacrificing them will not increase the car benefit tax charge.
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim23035

bovril

Notpoodle did you get anywhere with this ?

fleetevolution

From APril there is no tax on this benefit for pure electric so the savings are significant, there are a number of companies that can take away the admin and leaver risk for small companies, such as mine Fleet Evolution but there are a few. Just remember salary sacrifice cars do work really well but only with green cars and a are a long term commitment. HMRC will not let you leave the arrangement early if you change your mind