Of course, one of the reasons you may not have considered it is that you may not of heard of it, or perhaps don’t understand it.

How does salary sacrifice work in practice?

A salary sacrifice scheme is an arrangement that employers can offer to employees. The scheme allows part of an employee’s pre-tax salary to be exchanged for other benefits, mainly non-cash items. This could include a vehicle.

Can salary sacrifice be used to acquire a new car?

The short answer is yes, if your employer puts such a scheme in place.

It can allow you to ‘sacrifice’ (trade) a fixed amount of your salary each month in exchange for a new car. The benefit of acquiring a car in this way is that the monthly sacrificed amount is taken before tax. This means you save on income tax and national insurance contributions when buying a car in this way via your employer’s scheme.

It is therefore a tax effective way to acquire the vehicle and in reality benefits both you and your employer because it will lower their monthly PAYE liability by a commensurate amount.

It will be however be deemed a benefit in kind ( 'BIK') so some tax will be payable. The amount of BIK tax is normally calcuated based on the value of the car, its CO2 emissions and your tax bracket. It is worth noting that pure electric vehicles work well in this regard because of the absence of CO2 emissions.

So how does a salary sacrifice scheme work for buying a car?

Well, in this case, it would deliver you a car that you would lease from a third-party supplier of vehicles that has an agreement with your employer. The leasing cost of the vehicle is automatically deducted from your salary every month before you are taxed under normal PAYE.

You need to also remember though that unlike company car schemes where your employer contracts to lease and pay for the car and also maintain it, in salary sacrifice arrangements you are in reality paying for the car and it is your responsibility to maintain it.

Are there any other benefits to buying a car using Salary sacrifice?

In addition to the savings in income tax and NI contributions, you might also be able to get fleet discounts through your employer. You will save on VAT and should have no pre-purchase credit checks and no need for a deposit.

When acquiring a new car in this way, the salary sacrifice scheme is pretty good and usually also includes all servicing costs as well as the cost of new tyres if arranged under a contract hire rental agreement.

Just remember that once you join a salary sacrifice car scheme you are absolutely contracted in for the duration of the contract. (If you leave your job you will have to give the car back).

Not all salary scrifice scheme are created equal

Whilst most schemes will provide cover for  resignation / redundancy / sickness and dismissal etc [ to enable a cost free return of the vehicle ] providers will differ in terms of the delay in the contract period before offering such cover. Make sure you take sound advice before deciding on the best scheme.

Salary Sacrifice is not just for large businesses

Salary sacrifice schemes are not just for the large corporations with 100’s of employees. Many scheme can be viable with busnesses of 25 employees or more.

Where do I start looking for salary sacrifice car schemes?

You need to find out if your employer has a scheme in place already. If they don’t you could suggest it to them. They will have to partner with a participating supplier first.

Here at TYSONCOOPER, we would be delighted to talk to you and your employer to take you through how to set a scheme up and how we can use our expertise and supplier base reach to provide you with the best possible deals and options.

Talk to us at: https://www.tysoncooper.com/contact