Salary sacrifice – your questions answered

Salary sacrifice schemes are explained in some detail in our separate article here, but a few readers have been in touch asking for more details and with some complicated questions which made our head hurt. So we asked an expert for some help to get them answered. Alison Argall is the business development director at Tusker, a leasing company which specialises in salary sacrifice. Here goes...

What's the process of ordering a car through salary sacrifice?

The schemes provides access to all almost current makes, models, and specifications available in UK market – although many companies will restrict the choice. Employees then make their selection and the company checks the eligibility and approves the car order.

The employer usually leases the car for a period of between 24 and 48 months. When the car arrives, the employer reduces employee’s gross (pre-tax) salary in exchange for the benefit of the car. They then use the gross salary sacrificed to cover the lease company's monthly invoice. Most will show what the effect will be on your monthly take home pay to make it easier.

My company doesn't have a salary sacrifice scheme. How can I go about setting one up? 

If you are a business and want a scheme in place it is a simple business relationship with the provider. Therefore the employer has to sign a master contract hire agreement to cover off the funding. The employer can choose from different types and values of car and different contract lengths to be made available for their employees. Because there is a risk of the employee leaving before the end of the car's contract, employers can also choose to take out early termination and redundancy protection which protects everyone should they leave the employment and end the agreement early. 

Any electric car can be ordered through salary sacrifice

How much work will my HR department have to do to set up salary sacrifice? 

Very little. The lease company you sign up with should implement and carry out the majority of the work. It generally takes between four to six weeks and there is zero cost to the employer. 

Are there restrictions on which employees can have a car under salary sacrifice? 

There are no restrictions on which employees can benefit from salary sacrifice, in fact HMRC is keen for all employees to have access. There are however age restrictions on certain cars based on the insurance cover. The lease company will work with employers to ensure employees only have access to the cars they can afford and are legally entitled to drive. There may also be financial restrictions as the amount an individual can sacrifice for a car – it cannot take them below the official national living wage for obvious reasons. 

Will salary sacrifice affect my pension or other benefits? 

Most companies use the so called 'notional' salary to calculate pensions, which is based on the employee's pay before any salary sacrifice contributions such as a car or childcare are considered. But a final salary pension could be impacted, so if you were in your final three years of employment before retiring, it would be worth reviewing the decision in detail. There would be no impact on an employee’s own private pension such as a SIPP. As with all areas of pension we would recommend employees receive professional advice through their company or an independent financial adviser before signing up to the scheme. 

What’s in it for my company? 

Firstly, it provides a valuable benefit to help companies retain or attract good people to their organisation. A car is usually the biggest purchase outside an employee’s house; therefore, it has a perceived high value. Having the right scheme in place can be the difference between recruiting a person or them joining another company where a car would cost them more – or not be available at all.

Secondly, employers benefit from national insurance savings for ultra low emission vehicles and by getting employees into a new car with full maintenance and insurance they are meeting their duty of care obligations if using the car for business. 

Finally, operating an ultra low emission salary sacrifice scheme contributes to them improving their environmental footprint.

• ​Here are are six easy ways to cut your carbon footprint and electricity use - so you have more for driving!
  

Having a car park full of new electric cars brings lots of positives for the employer too

Will salary sacrifice affect a mortgage application? 

Yes, as part of a mortgage company’s affordability index individuals would have to volunteer their gross and net earnings. That would include outgoings such as a bank loan, credit card or car HP or PCP finance. Therefore, all salary sacrifice benefits would also have to be declared. 

Does a company need to be a certain size to have a salary sacrifice scheme? 

There is no legal restriction based on a company’s size and the benefit is designed for all employees, not just directors or company car drivers. The leasing company may impose some restrictions though.

Can sole traders and the self-employed set up a scheme? 

Unfortunately not. Under HMRC legislation you need to be an employee to benefit from salary sacrifice as you are agreeing with your employer to vary your terms and conditions of employment to receive a benefit in lieu of salary. Small organisations can however operate salary sacrifice schemes and there are salary sacrifice providers in the market that specialise in working with smaller companies. 

How much will it cost me?

As the rental includes insurance, like any policy the costs will vary slightly based on the driver’s age and where they live. Monthly rentals will also vary based on a driver’s annual mileage. As a ballpark, you can expect to pay around £300 at the cheaper end of market for a car like a Renault 4. These prices are the net salary figures, so this is what you’ll actually notice going from your pay packet every month after tax. (based on 5k miles travelled per year.)

Many car companies will be doing deals with the leasing providers though so their are often bargains – but they will be time limited so don't hang around!

Cars like the Renault 4, Puma and MG's lineup will be among the cheapest to lease

Am I only allowed one car through a salary sacrifice scheme? 

No! HMRC does not stipulate a restriction of how many cars an employee can have on the scheme, it is down to the employer’s overall benefits framework and employee affordability. 

My company currently pays mileage when I travel on business. How will this be affected? 

This works the same way as a company car with the employee being compensated for any business mileage based on HMRC’s advisory mileage rates to reimburse for the energy used. Employers can choose to pay more than these rates, but employees must remember they will be taxed on the additional company mileage contribution.

Have you got a case study I can use to convince my boss?

Yes. Calderdale and Huddersfield NHS Foundation Trust has a current take-up of 6% with its scheme across all of its staff, with nearly 300 electric and ultra low emissions vehicles. The scheme is managed by providers Tusker and CPC Drive.

It gives access to new, safe and environmentally friendly vehicles while the NHS trust also benefits from lower National Insurance contributions provided by salary sacrifice to its employees.

"Our drivers are really happy with the scheme, and this can be seen in the high level of engagement among our 6,000 employees across three hospital sites," said Tegan Joseph, benefit coordinator for Calderdale and Huddersfield NHS foundation trust.

"Above and beyond the obvious environmental impact of our staff being able to drive greener cars, the key advantage to the scheme is that it makes it possible for staff members to afford a vehicle when they might otherwise not have been able to do so. It was really important for us to ensure that any scheme we introduced was affordable to our staff."