Many companies offer their staff salary sacrifice benefits, where employees surrender part of their salary in return for a non-cash benefit, typically health care, holiday insurance and childcare. 

But few offer the ultimate subsidy: a new car.

Yet offering staff a way to fund a new car more cheaply has wide-ranging benefits from the company. It can pull them out of grey cars, typically older, less well maintained and more of a risk; it can be a way to fund a wage increase when you can’t give any more money, at no additional cost; and it reduces salary and National Insurance costs. 

Employees save on income tax, VAT and National Insurance contributions – the savings are usually far greater than any rise in benefit-in-kind tax. They can also be persuaded to run lower emission vehicles, if the scheme is tailored in the right way.
There is also an opportunity for the employer to profit share on the employee savings.

Deloitte is offering its salary sacrifice scheme as a template for other organisations to adopt. Software has been developed to enable leasing companies to offer the salary sacrifice scheme to their fleet customers.

Its scheme, dubbed all-employee, is based around offering cars below 120g/km CO2 emissions to staff who do not qualify under the company car programme. It is modelled on wholelife costs and is calculated on a two-year period.

Mike Moore, Deloitte director of Global Employer Services, says there is a clear distinction between providing cars to employees that aren’t currently entitled to one and running a normal company car programme as a salary sacrifice scheme.

“To make an all-employee scheme work you need critical mass, for example, thousands of employees,” he says. “That’s because you need hundreds of people to join the scheme to make it viable.”

However, he believes all company car fleets would benefit from offering salary sacrifice as an alternative to their existing company car policy. “It’s a better way of costing for perk cars because it is underpinned by the wholelife cost approach. And it reduces CO2.”

It’s also perfect for companies with large grey fleets. “A company can typically save £500 per car over two years on a sub 120g/km car. And drivers can save hundreds of pounds per month on a like-for-like PCP,” Moore says.

Although Deloitte’s scheme is limited to sub-120g/km CO2, the company says salary sacrifice works for any type of car, even those above the 160g/km threshold.

However, the current economic recession is perhaps not the best time to be considering introducing a new scheme, according to consultant David Rawlings. He points to the uncertainty over redundancies, but is confident that salary sacrifice will have a major role to play in company car provision in the future.

Public sector fleets

Public sector fleets are already showing considerable interest, according to PricewaterhouseCoopers.

“More companies will look at it as a viable option,” says Rawlings. “There will be a sea-change in the way they think about fleet cars and the role they play in the business – it will be part of the remuneration strategy, a role for HR. But the economy has to be the right time.”

As a funding method, salary sacrifice works for many of the reasons that Employee Car Ownership (ECO) does – tax efficiencies and flexibility of choice.

ECO schemes have also been growing in popularity over the past couple of years. In an ECO scheme, the employer needs to get money to the employee to fund the cost of the vehicle.
This will normally be the amount needed to pay the vehicle’s maintenance and finance repayments, less the amount the employee would have paid in company car tax. 

If the employer makes additional contributions above AMAP payments, they need to meet the income tax and National Insurance (NI) arising on that sum. This is why ECO is only normally viable if you are doing high mileage. 

Schemes that have been implemented, managed and assessed properly since the company car tax rules changed in 2002, which created the opening, have proved successful. 

To prosper, they need low employee attrition rates, high proportion of high rate taxpayers, adequate business mileage across the fleet and sensible policy decisions.

 

Panel 1

Benefits of salary sacrifice schemes:

  • Can help environmental agenda
  • Increases employee flexibility
  • Corporate Risk – moves away from the grey fleet
  • Take advantage of new tax rules
  • Generates savings for employee and employer
  • May include carbon offset facility


And the issues to be aware of:

  • HMRC must satisfy themselves that the salary sacrifice is effective - must not be an application of earnings
  • Eligibility criteria
  • Impact of salary sacrifice on occupational pensions, overtime, bonuses, future pay rises - concept of “Notional Pay”
  • Changes to systems including payroll
  • Impact on Working Tax Credits, National Minimum Wage, state benefits, Statutory Maternity Pay etc
  • Implications of the Maternity Regulations
  • Vehicle choice: focus on low CO2 emissions cars, (although can also work for higher CO2 emission cars)
  • Consumer credit licence requirements

Source: PricewaterhouseCoopers