Salary Sacrifice - Changes my Tax Bracket

Yellamo

Hello,

I am looking at an EV Salary Sacrifice scheme. 
Currently a Higher Tax payer (40%). But utilizing the scheme means my salary would therefore reduce to 49,373. Which is 897.60 below the higher tax bracket threshold.

What would the impact of this be?

When Im calculating the cost./benefit of the Salary Sacrifice scheme - I am using the 'higher tax payer' numbers...

Really welcome any thoughts and advice.

Dazed_and_C0nfused

What do you mean by EV?

Yellamo

Electric Vehicle - sorry.

MaxiRobriguez

You have to read the fine print very carefully as many "salary sacrifice" options whilst taken immediately from your salary do not actually change your income tax position. 

The main bonus of moving into the basic rate tax band, apart from dodging 42% tax (Income+NI), is you get access to things which are restricted to HRTs. So if you are in receipt of child benefit you will get a full payment, and if you are married and your partner earns <£12,500 then you can transfer some of their tax free allowance to yourself which could save you up to £250 in tax relief. What is actually available to you depends on your circumstances. 

The main negative is that reducing your salary can impact your ability to obtain credit from lenders, as you have a lower salary. So if you're looking to move house and are requiring a mortgage which is stretching your affordability now, taking the salary sacrifice option may limit you further. 

Whilst we're talking about salary sacrifice - from a purely £ view it probably makes more sense for you if you haven't already to look at increasing pension contributions and fund the EV purchase with a loan. 

KingOfSnake

MaxiRobriguez said:

You have to read the fine print very carefully as many "salary sacrifice" options whilst taken immediately from your salary do not actually change your income tax position. 

The main bonus of moving into the basic rate tax band, apart from dodging 42% tax (Income+NI), is you get access to things which are restricted to HRTs. So if you are in receipt of child benefit you will get a full payment, and if you are married and your partner earns <£12,500 then you can transfer some of their tax free allowance to yourself which could save you up to £250 in tax relief. What is actually available to you depends on your circumstances. 

The main negative is that reducing your salary can impact your ability to obtain credit from lenders, as you have a lower salary. So if you're looking to move house and are requiring a mortgage which is stretching your affordability now, taking the salary sacrifice option may limit you further. 

Whilst we're talking about salary sacrifice - from a purely £ view it probably makes more sense for you if you haven't already to look at increasing pension contributions and fund the EV purchase with a loan. 

What? Get a loan for an EV when you can sal-sac? Pay interest on a car that is devaluing? 100% EV are currently taxed at 1% and then 2% for 22/23 - 24/25 (which obviously can change) and so is very tax effecient, naturally depending on how much you have to sacrifice. You then get a fully provided car, insured and maintained for the equivalent of 58% (or 68% if it is basic rate) - plus you'll be saving on the H&SCL from next April which is added to employee NIC, and a separate levy for the year after. Your employer should have a scheme guide which explains this all in detail. As always, sal-sac is not for everyone (loans and mortgages as previously mentioned) but EV is actually a really good one. I have signed off the tax & NIC for a huge hybrid/ electric fleet switch and I was seriously tempted myself. Do check who pays for any home charging points and if you can charge at work (we needed to install a new sub-station to deal with demand). Properly constructed salary sacrifice DO change your income tax and social security position. 

MaxiRobriguez

KingOfSnake said:

MaxiRobriguez said:

You have to read the fine print very carefully as many "salary sacrifice" options whilst taken immediately from your salary do not actually change your income tax position. 

The main bonus of moving into the basic rate tax band, apart from dodging 42% tax (Income+NI), is you get access to things which are restricted to HRTs. So if you are in receipt of child benefit you will get a full payment, and if you are married and your partner earns <£12,500 then you can transfer some of their tax free allowance to yourself which could save you up to £250 in tax relief. What is actually available to you depends on your circumstances. 

The main negative is that reducing your salary can impact your ability to obtain credit from lenders, as you have a lower salary. So if you're looking to move house and are requiring a mortgage which is stretching your affordability now, taking the salary sacrifice option may limit you further. 

Whilst we're talking about salary sacrifice - from a purely £ view it probably makes more sense for you if you haven't already to look at increasing pension contributions and fund the EV purchase with a loan. 

What? Get a loan for an EV when you can sal-sac? Pay interest on a car that is devaluing? 100% EV are currently taxed at 1% and then 2% for 22/23 - 24/25 (which obviously can change) and so is very tax effecient, naturally depending on how much you have to sacrifice. You then get a fully provided car, insured and maintained for the equivalent of 58% (or 68% if it is basic rate) - plus you'll be saving on the H&SCL from next April which is added to employee NIC, and a separate levy for the year after. Your employer should have a scheme guide which explains this all in detail. As always, sal-sac is not for everyone (loans and mortgages as previously mentioned) but EV is actually a really good one. I have signed off the tax & NIC for a huge hybrid/ electric fleet switch and I was seriously tempted myself. Do check who pays for any home charging points and if you can charge at work (we needed to install a new sub-station to deal with demand). Properly constructed salary sacrifice DO change your income tax and social security position. 

To be clear, I meant to use as much salary sacrifice as possible (either to the point whereby it is impacting living cashflow or hitting minimum wage) to fund pension contributions, and then using a low cost loan (if required) to finance the car. 

If there is left over capacity for more salary-sac then yes, by all means push towards EV purchase.