Salary sacrifice company cars: How to implement a scheme

Planning, communication and co-ordination are vital elements to get a fleet salary sacrifice scheme off the ground

One of the attractions of fleet salary sacrifice for the employer is that, if it is done well, there should not be a great deal of internal administration needed once the scheme is up and running.

Nevertheless, you should expect – and budget for – a fairly intensive planning process ahead of the launch. Many employers which have gone down this route say it often takes three to six months to get all the Is dotted and Ts crossed.

You will need to think carefully about what sort of scheme you want – for example, just all-employee or all-employee with a separate senior staff or business need scheme running alongside.

It is also a good idea to consider what you are trying to achieve – predominantly tax savings, employee loyalty, grey fleet management, environmental kudos, and so on.

Then you will need to decide what selection of vehicles will be in the offer (will there be a CO2 cap, for example), what practical steps your business will need to take (whether you need to start from scratch or can bolt onto an existing offer) and what people, both inside and outside the business, are likely to need to be involved, says Ben Creswick, head of business development at Zenith Provecta.

Finance and payroll closely involved

“It is likely that both finance and payroll will need to be closely involved,” he says. “There are also lots of questions you will need to answer in terms of what sorts of car you will be offering and through what sort of provider, what you are going to do about insurance, whether it will be a bespoke product or linked to an existing salary sacrifice offer, and so on.”

The development of an easy-to-use portal will be a key implementation milestone. This will need to show and calculate employees’ take-home pay pre- and post-sacrifice – perhaps through an example monthly payslip. It should also explain the scheme clearly and show the tax benefits, but also outline the commitment the employee is entering into.

It will probably also need to show comparisons between different vehicle types, as well as a clear breakdown of the salary sacrifice calculation, outlining what is and is not included, plus the ongoing support package.

Other specifics to hammer out with your provider can include development of a site access form to verify whether an employee is eligible to enter the scheme, an order authorisation process to accept or reject orders, and the creation of monthly rental invoices, says Creswick.

Regular payroll report

Co-ordination with payroll may also be required around how any fines, congestion charges, outside contract maintenance, foreign travel requests, collections or insurance excesses will be recovered from the employee. There will also probably need to be a regular payroll report.

Although the provider should be able to deal with many day-to-day issues, there will need to be a nominated employer contact for the provider to deal with.

This may be someone within HR, because HR is most likely to be leading the whole implementation process, says Paul Hollick, general manager, sales development at Alphabet. Either way, it is vital that HR clearly understands the scheme, and the provider should normally talk the HR team through the benefits and possible risk scenarios and solutions. The trust and transparency of this relationship will be pivotal.

As long as the scheme involves the employee sacrificing salary to obtain a company car, a consumer credit licence should not be required, says the Office of Fair Trading. Also, employers are not obliged to tell HM Revenue and Customs when they first put a scheme like this into place that offers a new benefit in kind. Once it is in place, employers can ask HMRC to confirm that they are applying the correct tax treatment.

Documentation is the key

“Documentation is the key,” says Graham Farquhar, employment tax partner at Ernst and Young. “You want to ensure it is not possible for an employee, once they have requested it, to be able to turn around and say, actually I do not want it.

“Similarly, communication is vital. People really need to understand how long they are going to be tied into the car and how much they are actually going to be sacrificing.”

Farquhar adds: “It is also important to ensure employees have the right tax code and, if need be, that it is amended. Employees, too, need to be taking some ownership of the process.”

Key milestones

  • Choose your provider.
  • Decide what you want your scheme to achieve.
  • Decide on vehicle choice and the role of any existing scheme.
  • Build your portal and begin promoting it internally.
  • Set a launch date, after which orders can be taken.

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