If you read nothing else, read this…
- Salary sacrifice arrangements offer tax advantages and enable both employers and staff to save on National Insurance contributions.
- Many schemes include insurance and maintenance benefits, reducing the costs associated with running a car.
- Car salary sacrifice schemes can equip employees with newer, greener and safer cars.
Colin Tourick, Grant Thornton professor of automotive management at the University of Buckingham Business School, says that car salary sacrifice “ticks all the boxes”. So what are these boxes and how exactly do salary sacrifice schemes benefit both employer and employee?
Cost efficiency
The most noted advantage of salary sacrifice is that, in exchange for part of their gross salary, it enables employees to save on tax and National Insurance contributions (NICs), as well as reducing NIC costs for the employer. Many providers also include servicing and maintenance, breakdown cover, insurance and other valuable benefits in their salary sacrifice offerings, lowering the costs associated with running a car.
Employers also have the potential to make savings on the retail price of cars for their fleet. Tourick adds: “Salary sacrifice is beneficial because you can tap into corporate discounts, and that makes for a great savings.”
Addressing environmental and safety concerns
By equipping staff with new cars featuring the latest technology and designed with today’s emission standards in mind, organisations can curb both safety concerns and their environmental footprint. While it is important that employers incorporate car schemes into a comprehensive risk management strategy, the use of newer cars that are well managed and looked after can provide support for the duty-of-care issues surrounding company car usage.
John Pryor, chairman of the Association of Car Fleet Operators (ACFO), notes: “[Salary sacrifice schemes] are also getting older cars off the road that have higher CO2 [emissions] and driving younger people into smaller cars that are better equipped, that are safer considering the safety requirements in them nowadays, and with lower CO2 [emissions].”
An employer of choice
John Webb, principal consultant at Lex Autolease, adds: “One of the benefits of salary sacrifice is that it offers the opportunity of having a car to people who might not otherwise be eligible [for other types of company car schemes].”
It also provides an opportunity for those who may not be able to afford to buy a car, particularly outside of the used car market, or to take on associated running costs. “It’s giving employees a route to market and takes all the hassle away,” says Webb.
The option of a car, particularly when accompanied by insurance, is an attractive prospect for staff across the workforce spectrum, including younger employees.
Communicating the benefits
However, employees may not be aware of all the benefits offered by a car salary sacrifice scheme. Alastair Kendrick, director at McIntyre Hudson, says: “A lot of people don’t understand that they’ve even got a salary sacrifice scheme.”
Communication can increase take-up and enhance employee understanding of exactly how the scheme works, including information about benefit-in-kind (BIK) tax and what happens if an employee leaves the organisation, for example.
But there has been some concern that the government’s announcement in the Summer Budget 2015 policy paper that it will ‘actively monitor’ salary sacrifice schemes, and speculation about what this could mean for salary sacrifice in the future, will only serve to muddy employer and employee understanding further.
While there were differing opinions on what action the government would take, if any, on salary sacrifice, there is general agreement that car salary sacrifice schemes remain an attractive proposition, even when tax elements are not taken into account.
Pryor explains: “If you’re looking for a low-emission car, funding it properly and looking at the costs of that, then it’s still a very good package compared with going outside [of that scheme] and trying to replicate it.”
