Salary sacrifice company cars: How to implement a scheme

Top tips for set-up

• Find out how much employee demand there is for the benefit.
• Seek specialist tax advice.
• Ensure the launch fits in with any other new benefits planned.
• Make sure the portal highlights tax breaks and explains the commitment staff are making.

Employers must do a lot of groundwork on the policies, agreements and systems they will need to implement a salary sacrifice car scheme successfully

Speak to any leasing provider about implementing a salary sacrifice car scheme and the advice will be: follow their model and it will be a straightforward, hassle-free process that, once up and running, will need minimal internal administration.

That is a sales pitch, of course, but it should, to an extent, actually be correct. Affinity-style, all-employee salary sacrifice schemes have been around long enough for the models, structures and implementation processes to become pretty standardised.

But that does not mean employers can just sit back and expect everything to happen. The secret to smooth implementation is to expect, and budget for, a fairly intensive planning process up to the launch. It commonly takes three to six months to get all the Is dotted and Ts crossed.

First, employers need to establish how much demand there is in their workforce for a salary sacrifice car scheme. Karen Lewis, autosolutions consultant at provider ALD Automotive, says: “The first thing an employer needs to do is understand the appetite for a scheme among its employees. So organisations need to get feedback to establish that. It is surprising how many schemes there are in place that end up having minimal take-up.”

It may sound obvious, but it is important to set a launch date. The timing of the launch may be affected by where the employer is in the financial year and whether it is launching other benefits that might complement the scheme.

Nathan Male, director, global employer services at Deloitte, recommends following a structured process involving an initial one-day scheme-design workshop and development of an implementation programme before securing management approval and sign-off.

Initial scheme design

It is then typical to look at initial scheme design, financial modelling, the development of operation and process manuals to circulate around the relevant departments (normally HR, tax, finance, payroll, fleet and procurement), the selection and appointment of a provider and the development and integration of technology and systems. Then comes the communication and marketing around the launch, and finally the launch itself.

Male explains: “Employers need to bring the scheme into line with internal processes, payroll reduction, P11D reporting, and so on. They also need to ensure the monthly rental invoices and any charges are being managed correctly and, of course, they especially need to ensure that the tax components are charged correctly.”

Other things to bear in mind include developing a website-access form to verify that an employee is eligible to enter the scheme, and an order-authorisation process to accept or reject orders. Information on the scheme’s online portal should highlight the tax benefits, explain the commitment the employee is entering into, and provide comparisons between cars. It is also helpful to spell out what is not included in the package.

A regular payroll report will probably be needed. It also makes sense to appoint a nominated employer contact for the provider to deal with, usually someone within HR.

ALD’s Lewis says: “There may be a lot of professional services work that an employer needs to do, not just putting the scheme in front of HM Revenue and Customs (HMRC), but also involving payroll (especially if it is done through an external provider), internal tax and pensions staff, and so on. There can be a lot of fringe things to think about.”

Finally, it is vital to get the tax treatment right, so specialist tax advice is pretty much a given. David Chandler, senior manager at KPMG, says: “It is a salary sacrifice scheme, so 99% of organisations will want to seek HMRC clearance and the devil can often be in the detail. There can be issues around the VAT treatment and making sure it is compliant with HMRC rules, and that employers are being compliant with what happens at the end of the contract.”

Starting a scheme

Key milestones:

Agreements and contracts
• Discuss, agree and sign master hire and service-level agreements for scheme structure/parameters.
• Confirm salary sacrifice calculation and customer savings requirement.
• Agree term and mileage.
• Agree manufacturers for inclusion/CO2 cap.
• Complete tender exercise to agree final terms with chosen manufacturers.

Invoicing and payroll
• Agree invoicing format, frequency and payment timings.
• Agree payroll interface.

Data transfer
• Determine and set up the data transfer protocol (incoming - customer eligibility file, outgoing - invoice and payroll).
• Import data files into test environment.
• Test interfaces -decrypt files and map data to correct field.
• Complete test, fix and retest data interfaces.
• Sign off and transfer into ‘live’ environment.

Policy and procedures
Sign off on all aspects of the driver policy, including:
• eligibility
• scheme parameters