A salary sacrifice car is a benefit employers give their employees which can help both the business and staff members save money. The employee agrees to a reduced salary to finance a salary sacrifice lease car through their employer. This results in lower Income Tax and National Insurance for the employee and savings for the employer with lower Employer’s National Insurance.
The employee will then have to pay Benefit in Kind (BIK) , a tax based on the vehicle's CO2 and value. The employer will also pay National Insurance Contributions (NIC) if the Income Tax and National Insurance saved are greater than the BIK.
As BIK is based on CO2 levels, electric and hybrid lease deals offer the greatest savings. The rate is set at 2% of the value of the vehicle until 2025 on 0 g/km vehicles.
There are a huge number of benefits to undertaking the salary sacrifice scheme for both employers and employees.
Choosing an electric car salary sacrifice vehicle is the most cost-effective way for employees and employers to access a brand new vehicle. As EVs have a rate of 0 g/km and produce no CO2, their BIK rate is only 2% of the vehicle's value; a rate is set until 2025. This means employees can get behind the wheel of a brand new EV for a low fee.
Not only do EVs help save money with salary sacrifice but they also offer an environmentally friendly incentive for the company and employees - helping to reduce the carbon output.
Hybrids can also be a cheaper alternative to traditional all-petrol and diesel vehicles as the lower the CO2, the cheaper the BIK.
Employers can easily set up a scheme for their employees with a few minor changes. Contact us and we will check your business to ensure you’re eligible and we can provide you with our competitive leasing rates and build packages to suit you and your employees.
If you're paid via a salary, salary sacrifice cars will be beneficial. However, if you are mainly paid through dividends, salary sacrifice will likely not be the best option for your car.
Salary sacrifice will offer greater benefits for many employees for those who lease EVs but please contact us to discuss the best option for your business.
If employees choose a car that produces a lot of CO2, the BIK will be more expensive making the scheme less effective. Also, as the employees’ salary is lower, this could affect mortgage and credit applications.