- What is salary sacrifice?
- How does car salary sacrifice work?
- Are salary sacrifice car schemes worth it?
- What are the benefits of salary sacrifice for employers?
- What are the disadvantages of salary sacrifice for employers?
- Can salary sacrifice reduce tax?
- What should you consider before doing a salary sacrifice scheme?
- What if an employee leaves?
- What if the employee damages the car?
- Do companies need to have a certain number of employees to offer salary sacrifice?
- Can sole traders and the self-employed set up a scheme?
- Should salary sacrifice appear on pay slips?
- What do I need to tell HMRC?
- What if an employee goes on maternity/paternity leave?
- Does it cost my company anything?
- Am I responsible to pay for the car?
- Will it save my company money?
- How old does the company have to be?
- Can I do a salary sacrifice as the company owner?
- Should my company set up salary sacrifice?
Salary sacrifice is a fantastic opportunity for employers. Although it can seem like quite a complex concept, we’re here to change that.
Read on for all the frequently asked questions about salary sacrifice for employers.
What is salary sacrifice?
Salary sacrifice is an opportunity for employers to retain or gain new employees. Offering a salary sacrifice car scheme to employees can bring great benefits for a company, such as increased employee retention, engagement and loyalty. It can also save businesses big bucks.
It works by sacrificing a portion of an employee’s salary and putting this towards an employee benefit. The most popular salary sacrifice scheme is for electric cars.
How does car salary sacrifice work?
A salary sacrifice car scheme works by taking a portion of an employee’s salary, and in return, they get a brand-new car.
The benefit here is that employers are offering employees a new electric car for much less than if they were to buy it outside of salary sacrifice.
This is an opportunity for employees to drive an electric car that they otherwise might not be able to afford without the help of their employer. That’s right – expect a ‘Best Boss in the World’ mug at the Xmas party!
Are salary sacrifice car schemes worth it?
In an employee’s life, a car will be one of the biggest costs they make – on par with their house. As an employer providing a new car, this is undoubtedly a high-value favour.
If you’re looking to retain existing employees and want them to feel appreciated, a salary sacrifice car scheme is a fantastic opportunity to do this. Not only will they feel seen and heard, but they are likely to stay loyal if their needs are being met.
In car schemes for salary sacrifice, the cars leased are on corporate discounts. Which means vehicles are available at a reduced cost. For employers, this means access to fleet discounts.
What are the benefits of salary sacrifice for employers?
Benefits of salary sacrifice for employers include:
- Employee retention
- Attractive employee benefit
- Helps reach your company’s environmental goals
- Lower business expenses
- Pay less National Insurance contributions for employers and employees
- Vehicle fleet discounts available at the corporate rate
What are the disadvantages of salary sacrifice for employers?
- If an employee leaves then the car payments are left for the employer to pay – enquire for OSV’s solution
- Employers are liable for the credit and return condition of the vehicle – get in touch for solutions for return condition
- It uses up credit lines
- Need to pay Benefit-In-Kind National Insurance tax
Can salary sacrifice reduce tax?
One of the many reasons salary sacrifice is a popular scheme is due to its tax benefits.
Both employees and employers benefit from paying less income tax and National Insurance contributions.
This is because the salary is being reduced, therefore the percentage amount reduces with it.
What should you consider before doing a salary sacrifice scheme?
Before setting up a salary sacrifice scheme for your company, you should finalise which electric car scheme would best suit your employees and company.
Start with this list of the UK’s best electric car salary sacrifice scheme providers.
Next, you should consider the type of support you will need in setting up a salary sacrifice scheme:
- Do you need an account manager to help set up and run the car scheme?
- Do your employees need valuable information about salary sacrifice or electric cars?
- Would an employee salary sacrifice portal be worthwhile?
- Do your employees want access to the latest salary sacrifice electric car offers?
- Are various methods of virtual contact something that is needed for you and your employees?
- Would an all-in-one EV package including a home charger and installation be useful for your employees?
What if an employee leaves?
When an employee leaves, for whatever reason, this can leave employers with ‘debt’ as such, as they are responsible for the remaining costs of the car.
The employer can either continue to pay the monthly payments OR can pay an early termination fee.
An early termination fee is the responsibility of the employer. However, employers can protect themselves from this risk with ETI and a good salary sacrifice policy.
OSV offers an attractive Early Termination Insurance (ETI), ensuring you are covered for all areas of changes – subject to terms and conditions.
What does ETI cover?
- Resignation
- Long term sickness absence
- Accidental death
- Maternity
- Adoption and paternity
- Loss of licence on medical grounds
- Maternity/paternity/adoption leave
- Expatriation
It’s worth noting you cannot claim ETI within the first 3 months of your contract, and the first 9 months for maternity, adoption and paternity leave.
Another note for employers; when an employee takes maternity, adoption or paternity leave, the employer must continue to provide the vehicle.
What if the employee damages the car?
If the car is damaged during the contract, the vehicle must be repaired by the employee either through insurance or at their own cost.
Note: employers are liable for the return condition of the vehicle. Whilst fair wear and tear are allowed you should revise what damage is acceptable by the BVRLA.
Do companies need to have a certain number of employees to offer salary sacrifice?
No, according to HMRC there is no stated size a company has to be to take part in a salary sacrifice scheme.
Can sole traders and the self-employed set up a scheme?
No. HMRC states you need to be an employee to benefit from a salary sacrifice scheme.
This is because the employee and employer agree to alter the terms and conditions of employment for the employee to receive a benefit in lieu of salary.
Should salary sacrifice appear on pay slips?
Yes. It should be evident on pay slips when an employee is in a salary sacrifice scheme.
The contributions should clearly show the deductions made before tax and national insurance contributions are applied.
If the employee’s salary sacrifice doesn’t appear clear on pay slips, you must raise this with your payroll department immediately.
What do I need to tell HMRC?
You do not need to report anything to HMRC about offering a salary sacrifice scheme. When it comes to reporting the end-of-year expenses at the end of the tax year, then you must report the benefits.
Usually, HMRC likes to see:
- Evidence of the variation of terms and conditions (if there is a written contract)
- Pay slips before and after the variation
What if an employee goes on maternity/paternity leave?
If an employee goes on maternity or paternity leave whilst on the salary sacrifice car scheme, the car payments are left to the employer to cover.
There is a way around this to avoid any surprise costs. Early Termination Insurance covers employee leave including parental leave.
Does it cost my company anything?
Salary sacrifice can be completely free to set up – depending on the provider you choose. OSV offers a free set up for a standard salary sacrifice car scheme. For a more bespoke service, there is a fee – however other providers do not offer this option at all.
As the employer, you pay the initial upfront cost for the car and the employee pays you back over the course of the agreement.
Salary sacrifice car schemes actually save employers money due to paying fewer employee national insurance contributions.
If anything, companies can end up making money from salary sacrifice schemes.
Am I responsible to pay for the car?
As the car is hired on a salary sacrifice, it is not owned by the employee. It is a company car, leased by the business.
So, the employee is sacrificing a portion of their salary to pay for the car. However, payments can fall onto the employer if the following happens:
- An employee leaves due to maternity, paternity or adoption leave
- An employee is absent due to long term sickness
- Accidental employee death
- An employee loses their driving license on medical grounds
- An employee resigns
- An employee is expatriated
OSV offers Early Termination Insurance to cover any of these events.
The employee is responsible for costs such as charging the car, parking fines, repairs for any damages, going over the agreed annual mileage and any increases in road tax.
Will it save my company money?
Yes! Not only are you offering tax and national insurance (NI) reductions for your employees, but as an employer, you pay less employee NI contributions too. Win-win!
How old does the company have to be?
According to HMRC legislation on salary sacrifice for employers, there is no stated length in days, months or years of how old a company has to be to offer a salary sacrifice scheme to its employees.
Can I do a salary sacrifice as the company owner?
HMRC states the definition of a salary sacrifice scheme as “an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit”.
There is no mention of any employer or company owner being allowed to benefit from this salary sacrifice agreement.
Technically a director of a company is an employee of a Limited company, so they would be eligible. But, depending on how the director is paid will depend if it’s worthwhile – this is a question for your accountant.
Should my company set up salary sacrifice?
Now that we’ve gone through what salary sacrifice is, how it works and the most important frequently asked questions about salary sacrifice, do you think your company should set up salary sacrifice?
If you are looking to increase employee retention, engagement and loyalty, save your business money and increase your company’s green credentials – then it really is a no-brainer.
Are there any questions we’ve missed? If so, share them in the comments below and we will respond to your query.
