Salary sacrifice schemes are explained in some detail in our 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. She agreed to answer your questions in exchange for a mention of the company's website. So here it is.
How can I go about setting up a scheme at my company?
It is a business relationship 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. Employers can also choose to take out early termination and redundancy protection which protects them, and employees should they leave the employment and end the agreement early.
What's the process of ordering a car through salary sacrifice?
The scheme provides access to all current makes, models, and specifications available in UK market. Employees then make their selection and the employer conducts eligibility checks and approves the car order.
The employer leases the car from for a period of 24 to 48 months. When the car arrives, the employer reduces employee’s gross salary in exchange for the benefit of the car. They then use the gross salary sacrificed to cover the lease company's monthly invoice.
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. Implementation generally takes between 4 to 6 weeks at 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 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 cannot take them below National Living Wage.
Will salary sacrifice affect my pension or other benefits?
Most companies use the notional salary to calculate pensions, which is based on the employee's salary before any salary sacrifice contributions such as a car or childcare. A final salary pension could be impacted and if you were in your final three years of employment before retiring, there could be more of an impact so 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.
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.
Finally, operating an Ultra-Low Emission Salary Sacrifice scheme contributes to them improving their environmental footprint.
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 have to volunteer their gross and net earnings and 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 legislative restriction based on a company’s size and the benefit is designed for all employees, not just directors or company car drivers.
Can sole traders and the self-employed set up a scheme?
No as 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.
What are some typical prices for cars (cheapest to posh)?
Here are some ball-park salary sacrifice monthly rentals. 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. These prices are the net salary figures, so this is what you’ll actually notice going from your pay packet every month after tax.
How about an e-tron for £400 a month, including insurance and maintenance?
Am I only allowed one car through a salary sacrifice scheme?
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. https://www.gov.uk/guidance/advisory-fuel-rates. Employers can choose to pay more than these rates, but employees must remember they will be taxed on the additional company mileage contribution.