Salary Sacrifice – What is it and is it worth looking at?
Salary Sacrifice – What is it and is it worth looking at?
Salary sacrifice is a government approved scheme where an employee gives up part of their salary for a benefit or service from their employer. The idea being that the reduced salary attracts less tax and NI which is used towards the service or benefit they are receiving.
For vehicles, the scheme only works for electric cars and means savings of up to 50% on an Electric Vehicle (EV) lease, meaning that the employees can substantially upgrade their car, or put the extra savings towards their disposable income each month. Furthermore, because this is not a company car, employees can use their EV for personal use and even insure their family members too.
How does it work?
For employees the scheme reduces your Tax and NI via your salary. The cost of your new EV lease will be taken from your gross salary therefore Tax and NI is paid on your salary minus the EV lease cost. As your Tax and NI is taken from your gross income, which is now lower due to the deduction of your lease cost, your tax will reflect a lower salary rate.
The scheme can include additional services such as the full maintenance package including full servicing, parts labour and tyres for fair wear and tear, car insurance for the period of the agreement and insurance for the company should the employee leave the business. Being able to bundle all these services together into the EV lease means reduced costs for both employer and employee.
The scheme will require a variation to the employment contract and a monthly calculation to Payroll to allow them to make the correct deductions each month but this is all included in the monthly cost of the scheme.
Benefits
The benefits for the employee are clear. A car at a much reduced cost than they could otherwise get.
The incentives for the employer are that the scheme is great for staff recruitment and retention and is cost neutral for the business. The company can claim miles driven towards ESG targets and each EV is worth 4.6 tons of Carbon Dioxide equivalent to 2800 tree years of carbon offset.
For more information contact:
Neal Page
Horizon Vehicle Leasing
neal@horizonvehicleleasing.co.uk
Tel: 01233 754800