Fuelling salary sacrifice?

As providers launch salary sacrifice around cars with a view to benefiting perk drivers, Nick Golding weighs up if these arrangements could take over from affinity schemes

Affinity, or all-employee car ownership, schemes offer employees the option of purchasing a vehicle at a discounted rate negotiated by their employer. The number of organisations opting to offer this perk to staff, however, has remained relatively low due to a combination of poor discounts on cars and a lack of employee interest. The Employee Benefits/SureFleet Fleet research 2008, for example, revealed just 1% of respondents now offer an affinity arrangement for staff.

A small number of fleet providers, however, are now targeting this section of the company car market with a salary sacrifice product, which they claim can offer employees greater discounts on the price of a vehicle.

Through a salary sacrifice arrangement, employees can pay for a car out of their gross salary rather than net pay, so saving on tax and national insurance (NI) contributions on the payment, explains Andrew Cope, chief executive at leasing firm Zenith Vehicle Contracts, which offers the product to clients. Employers also save on NI. “The cars will be owned by the employer but funded by the individual through a salary sacrifice scheme. It is about helping employees to get a car at a lower price than they would in the open market,” adds Cope.

Administrative burden?
Rather than being deemed suitable for all employees, however, the scheme is targeted specifically at perk rather than business-need drivers. “We’re not trying to replace company cars. We are trying to widen company car ownership for employees that don’t already get a company car, or [to] even those who want to get a second car,” says Cope.

Employees that use this type of arrangement will be subject to company car tax, however, those who opt for an environmentally-friendly vehicle with low CO2 emissions won’t be so heavily penalised and could find themselves better off overall.

Gerard Gornall, managing director at fleet consultancy Intelligent Fleet, says: “If we can fund the product from pre-tax salary and if it is a low-CO2 vehicle, the tax can be very small. For instance, the tax on a £10,000 car that produces less than 120 grams per kilometre can be as low as £3.50 a week, which isn’t very much.”

Although providers have only just started to offer this type of salary sacrifice product to the market, employers have had the option to provide their own scheme for a while, but few have chosen to do so.

One reason behind employers’ reluctance to offer cars via salary sacrifice may be the amount of administration that is associated with running this type of scheme. Providers operating in the market, however, claim that their products are fully managed, which would alleviate the burden on employers.

“There has been some [employer] reluctance to take on a new fleet and, if it is around salary sacrifice, it really needs to be hassle free,” says Gornall.

As with any salary sacrifice arrangement around tax-efficient benefits, some employers may prefer to proceed with caution amid fears that HM Revenue and Customs (HMRC) could decide to amend the tax rules, as it did with home computing schemes in 2006.

These salary sacrifice car schemes, for example, could be seen as going against the government’s green agenda and its aim of reducing the number of cars on UK roads.

But Gary Hull, director of employment solutions at PricewaterhouseCoopers (PwC), believes this will not happen. PwC offers a salary sacrifice arrangement for cars through its flexible benefits plan. “We have had it for a number of years, and it is basically a company car scheme that is available to all employees. I don’t expect this to be affected by HMRC,” Hull explains.

HMRC would not offer comment on the operation of car-related salary sacrifice arrangements, but stated it would take a view on individual schemes. An HMRC spokesperson explains: “Arrangements of this sort tend to vary from employer to employer and would therefore need to be viewed [by us] on a case-by-case basis.”

If you read nothing else read this…

  • Some providers have entered the fleet market with products that offer a salary sacrifice arrangement on cars, so employees can buy vehicles through their employer and make savings on tax and national insurance.
  • Employers can run their own scheme in-house, but may have been put off from doing so by the increased amount of administration that arises from such an arrangement.
  • As with all salary sacrifice arrangements around tax-efficient benefits, employers may have concerns as HM Revenue and Customs has been known to change tax rules that are being used contrary to government intentions.