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• UK tax incentives naturally skew salary sacrifice company car schemes towards lower-emitting vehicles.
• Having an emissions cap on vehicle choice will naturally focus a scheme on greener vehicles.
• Further incentives for lower-emitting vehicles, or an extra levy on more polluting cars, can be other options.
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The growing tax advantages of low-emission vehicles are making them a priority choice for most employees taking part in salary sacrifice company car schemes, says Nic Paton
There are good reasons why salary sacrifice company car schemes are often associated with more environmentally friendly, lower-emission cars.
As of April this year the 15% benefit-in-kind tax base rate, which is applied to the list price of cars, started to be applied to cars with 125g/km emissions (down from 130g/km previously). This will decrease to 120g/km in 2012/13 and 115g/km in 2013/14.
Below this, cars with zero emissions currently pay 0% tax, rising to 5% for 75g/km or under and 10% for 120g/km or under. Above the base rate, the tax rate increases by 1% for every 5g/km up to a maximum of 35% for a polluting vehicle emitting 225g/km or above.
What this means in practice is that if an employer is offering a company car scheme based around salary sacrifice, it makes sense to skew it towards lower-emitting vehicles.
Cost benefits
Nigel Trotman, head of strategic consulting at leasing company Alphabet, says: "The beauty of salary sacrifice is that it naturally incentivises employees to choose greener vehicles. That is because benefit-in-kind tax is lower on low-CO2 cars. The green cost benefits of lower-carbon versions show up clearly in typically lower monthly payments when staff compare different models."
Nevertheless, for most organisations the environmental argument will be one of many reasons for going down the salary sacrifice route. Ian Hughes, commercial director at Zenith Provecta, says: "First and foremost, it is an employee benefit, so it is about retention and loyalty, being advantageous from a tax perspective, and the cost of it to the employee and the employer.
"Having said that, the tax and legislative structures around salary sacrifice schemes tend almost automatically to drive employees towards smaller, more environmentally friendly, lower-emitting vehicles."
There are ways an employer can use a salary sacrifice scheme to encourage employees to choose greener vehicles.
The most obvious is simply to cap the scheme at a certain level, perhaps at 160g of CO2 per km. This will automatically focus the scheme on greener vehicles and employers will often find staff naturally moving towards cars well below the cap limit anyway.
Helen Fisk, auto solutions manager at ALD Automotive, says: "Employers also might want to consider a user-chooser tool that shows the employee the benefit in kind, and which then will naturally steer them towards greener vehicles. Employers might want to offer a basket of vehicles with minimal emissions."
As a further incentive, an employer could offer to reduce the cost for cars below a certain CO2 banding or, conversely, add an extra levy to higher-emitting vehicles.
Extra levy
David Hosking, managing director at Tusker, says: "So, for example, if an employee takes a car that is sub-120g of CO2 per km, then they do not pay a levy. For one at 130g, you will pay an extra £5 a month, for 140g an extra £10, and so on.
"Most of the schemes we have are sub-150g or 160g and we are finding more and more people are going for sub-120g. There are now more than 900 vehicles that fall into that category, compared with about 85 back in 2008, so there is much more choice than there used to be. We are even talking to a company looking at a sub-100g/km scheme."
Employers will no doubt be more successful in getting their employees to choose greener vehicles if it is perceived that they are encouraging rather them forcing them to do so.
Read also Fleet policies go greener
