Buyer’s guide to salary sacrifice car schemes

Salary sacrifice cars were listed as one of the top 10 employee benefits that employers offered their workforce through salary sacrifice in 2013, with 6% of employers having introduced the benefit this year, according to Employee Benefits’ Benefits Research 2013, published in May.

The facts

What is a salary sacrifice car scheme?

This is a car scheme for which an employee forgoes a portion of their gross salary in exchange for a car, and receives tax and national insurance breaks.

Where can employers get more information?

Who are the main providers?

ALD Automotive, Alphabet, Fleet Evolution, Fleet Hire, Hitachi Capital, Inchcape Fleet Solutions, Leasedrive, LeasePlan UK, Lex Autolease, Tusker, Venson Automotive Solutions, Zenith.

Employee interest in salary sacrifice car schemes, which involve an employee forgoing a portion of their gross salary in exchange for a car, is being driven by a growing awareness of the benefit.

A survey from Tusker, conducted in June 2013, found that 87% of more than 500 employees polled have recommended a salary sacrifice car scheme to a colleague.

Schemes are attractive for employers because they are typically cost-free for the business, with most providers able to manage all aspects of car maintenance, including servicing, breakdown cover and insurance, as well as ongoing communications about, for example, driver and car safety.

Complications occur when an employee goes on long-term sick leave and cannot keep up the repayments on their car, and if an employment contract is terminated, be it through an employee moving on or being made redundant, which may result in an employer having to meet the outstanding costs of the car scheme.

National insurance savings

Employers can also benefit from the national insurance (NI) savings made by deducting employees’ car payments from their pay, which many organisations choose to invest in their car scheme to make the benefit even more attractive to employees.

For staff, salary sacrifice car schemes are a cost-effective way to invest in a car, and not just because of the NI savings. They can also reduce the level of tax they pay by choosing a low-carbon dioxide (CO2) emission model. This is because company car tax is based on CO2 emissions as well as the P11D value of a car, which takes into account, for example, recommended retail price and VAT, and an employee’s personal tax rate.

As part of the government’s ongoing efforts to reduce the UK’s CO2 emissions, chancellor George Osborne announced in his Budget in March 2013 that he would introduce a new, ultra-low-emission company car tax.

Accordingly, car manufacturers have been busy designing bigger cars with low emissions, which are increasingly being offered through salary sacrifice schemes, challenging the perception that only smaller cars have low emissions. Models such as the Nissan Qashqai are proving increasingly popular with employees.

But despite the growing interest in salary sacrifice cars, overall take-up of the benefit remains low. The number of employers that offered cars through salary sacrifice schemes may have more than doubled from 3% to 8% between 2009 and 2011 according to Employee Benefits’ Benefits Research, published in May 2013 but it also shows that cars were only the ninth most popular benefit offered through salary sacrifice in 2013, with just 11% of employers offering them on a voluntary basis and 3% through a flexible benefits plan [see graphs].

Employers’ growing fear of the liability involved in offering company cars, not least the threat of a corporate manslaughter charge resulting from an employee being injured or killed while driving a company car, seems to be negating the benefit’s attractiveness.

Benefits on flexible basis
Benefits on flexible basis