Employer Salary Sacrifice - Car

Mimi86

Hi

I was hoping for some advice on salary sacrifice for a car through my employer.

I pay 40% tax but need to get a new car. From reading websites I understand essentially the monthly cost of the car is taken off prior to tax being taken. However I don't understand benefit in kind. Is this lower on electric vehicles compared to hybrid/ petrol?

Thanks

Phoenix72

Mimi86 said:

Hi

I was hoping for some advice on salary sacrifice for a car through my employer.

I pay 40% tax but need to get a new car. From reading websites I understand essentially the monthly cost of the car is taken off prior to tax being taken. However I don't understand benefit in kind. Is this lower on electric vehicles compared to hybrid/ petrol?

Thanks

Yes it is but anecdotal evidence is that some of the deals on offer can often be beaten by arranging personal leasing yourself. You just need to do the maths.

Goudy

Yes, your lease payment is taken from your gross salary, which is before tax, NI and any pension contributions.
As your gross is now lower, your tax and NI contributions are less.
It's worth noting so will any pension contributions.

Salary Sacrifice Car Lease & Company Car Leasing Scheme UK (synergycarleasing.co.uk)

Benefit in kind (BIK) is a tax on non cash benefits or perks on top of your normal salary.
The government want a slice of these perks, in this case it's the personal use of a company car.

What is benefit in kind (BIK) car tax and how do I calculate it? (fleetnews.co.uk)
(There's a calculation tool in the above link)

The tax rate for this perk is roughly banded depending of the Co2 rating/electric range of hybrid for the vehicle and a calculation is made with that, your tax bracket and P11D (cars list price + delivery which is slightly less than the on the road price).

Benefit-in-kind (BIK) company car tax bands 2022 - 2028 (fleetnews.co.uk)
At the moment a pure electric has a very low BIK at 2% compared to 30%+ for a straight ICE, but this 2% will increase by 1% a year from 2025.

Bigphil1474

OP, if you drive as part of your job i.e. get some sort of allowance from work for providing a car, you need to check how getting a car on salary sacrifice affects that. Where I work, you lose your monthly lump sum payment and most of your mileage rate if you do a salary sacrifice lease, but not if you do a private lease. Having checked the figures for me, if i needed a new car on lease I'd be better doing it privately rather than the salary sacrifice scheme - your figures may work out differently, but don't forget any pension payments both you and the employer makes.

From what I can work out, the main beneficiary of SS schemes is the employer who not only saves on any employer NI payments, they also save on any pension contributions they make. 

DullGreyGuy

Bigphil1474 said:

OP, if you drive as part of your job i.e. get some sort of allowance from work for providing a car, you need to check how getting a car on salary sacrifice affects that. Where I work, you lose your monthly lump sum payment and most of your mileage rate if you do a salary sacrifice lease, but not if you do a private lease. Having checked the figures for me, if i needed a new car on lease I'd be better doing it privately rather than the salary sacrifice scheme - your figures may work out differently, but don't forget any pension payments both you and the employer makes.

From what I can work out, the main beneficiary of SS schemes is the employer who not only saves on any employer NI payments, they also save on any pension contributions they make. 

It all depends on your choice of car and the rates being charged by the employers preferred supplier. 

In principle the price should be lower as they can recover part of the VAT but the question is then if the loss of pension, mileage, reduced tax/NI etc and having to pay BIK  offset each other or not. With electric vehicles BIK being so low at the moment it's much easier to get things to stack up, if you want something sporty with big petrol engine then it will almost certainly not work out well. 

Bigphil1474

Not really. I've only looked at EV lease deals through the NHS fleet scheme which we are associated to (public sector), and the scheme is very competitive. I'm not looking at top end vehicles. It's when the employer's changes are added into the mix that the figures don't work out so well.

I'd lose around an additional £170 per month from my employer in total, (lump sum, and mileage payments), but private lease schemes are coming in roughly around £100 more than the NHS scheme on the vehicles I've looked at. There is an additional insurance cost, but not enough to cover the gap. Doesn't make much sense to me, but as far as I can tell, my employer is applying the rules correctly.