Salary sacrifice car schemes are a tax-efficient way to offer staff a brand new, fully insured and maintained car as part of a flexible benefits package.
Schemes are tax-compliant
At its most basic and simple level, a salary sacrifice car scheme allows employers to ‘pay’ their staff with a company car, with the employee sacrificing part of their salary in return for a non-cash benefit. Because this reduction is taken from gross salary, it can generate significant income tax and national insurance (NI) savings for the employee.
Although company cars are subject to benefit-in-kind tax, this is usually far outweighed by the reduction in income tax and NI. Schemes are fully compliant with UK tax legislation, and are not a form of tax avoidance or evasion.
Salary sacrifice car choice is wide
Under UK tax rules, salary sacrifice car schemes work most efficiently with low CO2 cars, typically emitting 120g/km or less, as the savings are higher. This not only makes the scheme more environmentally friendly, but also gives employees access to car manufacturers’ latest green technology.
There are currently more than 3,000 low-CO2 cars available in the UK, dispelling the myth that there is only a handful of dull, boring cars that are effective in salary sacrifice car schemes.
Car schemes are cost-effective
Another common misconception about salary sacrifice car schemes is that they are expensive compared with ‘normal’ retail offers. But salary sacrifice car schemes enjoy the benefits of corporate finance rates, which are usually significantly cheaper than the retail annual percentage rates advertised in new car promotions.
On top of these savings, employees will benefit from the significant fleet discounts that their provider can negotiate. According to Tusker’s calculations, these can offer an average saving of £70 a month compared with other car leasing or purchase schemes.
Also, almost all schemes offer fully comprehensive motor insurance, maintenance, servicing, replacement tyres, and road and European breakdown assistance, which providers can buy in bulk with significant reductions on retail prices.
Forward planning can help mitigate risks
Some employers think salary sacrifice schemes pose considerable risks to their organisation involving, for example, early termination charges if an employee in the scheme resigns, is made redundant or takes maternity, paternity or adoption leave.
Other potential risks include excess mileage charges, parking fines and end-of-contract damage.
But employers can minimise such risks by working with an experienced fleet provider to identify potential risks to their organisation and design robust processes at the scheme implementation stage.
Fleet providers can minimise costs
Another common employer misunderstanding is that salary sacrifice schemes are expensive and time-consuming to implement and require high administration once live. But the right provider will implement a scheme effectively and efficiently on an employer’s behalf and minimise any ongoing administration. This is why it is crucial for employers to choose an experienced, competent supplier.
Scheme success relies on sustained communications
Some employers wrongly believe that scheme take-up is generally low, but Tusker’s employer experience disproves this, with 3-5% staff take-up typical in the first year after implementation.
However, to achieve a strong response rate, employers need a positive, sustained communications programme to engage employees. Effective means of communication include roadshows, employer intranet sites, internal magazines, emails and flyers.
Working with the right experienced provider will enable employers to identify which methods of communication work best for their business and deliver a robust scheme awareness plan to maximise employee engagement.
David Hosking is chief executive of Tusker
