The concept of a Salary Sacrifice scheme can be confusing, but we're here to answer our most-asked questions! So whether you're an employee looking to join your companies current scheme or an employer thinking of offering a car scheme as a perk, here's everything you need to know before taking the plunge...
What is Salary Sacrifice?
A salary sacrifice scheme works by taking some money out of your paycheck before tax, in exchange for a non-cash benefit-in-kind (or BIK) such as a car or a mobile phone. Thousands of companies and their staff already make the most of schemes like these, and both the employer and employee make a tax saving.
Can it save me money?
One of the biggest bonuses a salary sacrifice scheme can offer is the benefit is taxed less than your salary is, and BIK tax is even lower if you opt for a vehicle with low CO2 emissions.
Despite having to pay a tax on your vehicle, salary sacrifice schemes are excellent value compared to other market options and are currently the cheapest way to own an electric vehicle. Plus, as you would be giving up part of your pay in return for a non-cash perk, a huge benefit of salary sacrifice is that it reduces your overall taxable pay, lowering the amount you would pay in tax and National Insurance.
You get taxed on the BIK of your chosen car, or on the amount of sacrificed salary (whichever is higher) unless you opt for an ultra-low emission vehicle - in which case you are solely taxed on the BIK, but don't worry - you can choose any car (ultra-low emission or not!) under the salary sacrifice scheme and still make a saving, and while opting for a greener vehicle definitely boasts an impressive BIK, it's important to weigh up the other costs involved in owning a car, such as fuel and insurance. You can find a typical saving breakdown below.
Salary sacrifice schemes cost employers nothing to begin and can be offered as a great reward or retention tool to employees that might not qualify for a company car.
What if you leave the company?
If you leave your current position while part of a salary sacrifice scheme you have several options. You can buy your outright, refinance it privately, or the scheme can be cancelled and the car can be collected. There is no early termination fee for employers.
What's more, salary sacrifice car schemes are fully HMRC approved!
Want to find out more?
Thinking of joining your companies salary sacrifice scheme? Get a sense of how much you could save using our comprehensive cost breakdowns here. Or are you an employer thinking of offering a car salary sacrifice scheme? Get in touch with TCH Salsa today!