Tax changes drive switch towards salary sacrifice

Leasing companies are reporting an increase in salary sacrifice for car schemes in the wake of April’s National Insurance rise.

National Insurance rose from 11% to 12% for all employees earning less than £817 per week and by an extra 2% for all those who earn more than the upper earnings limit of £42,484 per year. At the same time, the employers’ rate increased from 12.8% to 13.8%.

As a result, leading accountants predicted a greater interest in salary sacrifice schemes as employees looked to reduce their tax liabilities.

“There is no doubt that April’s NI rise makes salary sacrifice a more appealing proposition,” said Andrew Hogsden, senior manager in Lex Autolease’s strategic fleet consultancy.

Leasing companies recognised the opportunity for employees and employers to mitigate the tax changes, while reminding organisations of the other benefits salary sacrifice provides.

Ian Hughes, commercial director at Zenith Provecta, said: “We have seen more demand this year than at any other time since we first launched. Our order volume has increased by more than 60% since April 2011.

“In continued times of economic uncertainty, with wages not necessarily rising at the rate of inflation, the option to drive a new car with fixed and easy to budget for monthly payments remains a highly-attractive benefit.”

He continued: “Insurance costs are reported to have risen by up to 30% within a year and fuel costs remain high. With the potential risk of exposure to these unpredictable expenses and the cost of living rising in general, more employers and employees are seeing the benefits.”

Zenith Provecta has launched its salary sacrifice product, Salary Exchange, to eight new customers so far this year, while Leasedrive has launched five new schemes, compared to the eight it launched in 2010.

That brings Leasedrive’s total number of schemes to 17, with an overall salary sacrifice fleet of 5,000 vehicles. Take-up ranges from 1% to 15% for the oldest schemes.

But Roddy Graham, commercial director at Leasedrive, is not convinced that the changes to National Insurance have been driving the market. He said: “There has been an increase in the level of new enquiries from employers, but this appears to be due to higher levels of awareness rather than the changes in NI specifically.”

LeasePlan launched its salary sacrifice product SalaryPlan in March 2010 and is reporting continued growth in 2011.

“We have had significant wins from our existing client base and new customers alike, with further significant clients moving into implementation through Q3 and Q4 this year,” said Lesley Slater, director, LeasePlan. “All of this demonstrates the growing desire within this market place.”

Tusker has launched 32 schemes so far this year, compared to 22 in 2010. It now boasts 65 live schemes across the UK equating to 2,500 vehicles. However, that’s increasing by more than 200 vehicles every four weeks, with around six new schemes being launched each month.

David Hosking, managing director of Tusker, said: “We believe there has been a significant increase in interest since the National Insurance rise, although it can be difficult to tell if that is wholly due to the rise or just continued awareness of scheme and salary sacrifice for cars in general.”

Nevertheless, Hosking believes the market will continue to grow.

Most of the interest in salary sacrifice is currently coming from the public sector, energy companies and some parts of the retail and leisure sector, according to Lex Autolease.

“Longer term, forward-thinking business will acknowledge that the employment market will pick up and become much more competitive,” said Hogsden. “In this environment, salary sacrifice really comes into its own as a means to build more choice and flexibility into the employee benefits package.”

Richard Schooling, chief executive of Alphabet, concluded: “Today’s market conditions are encouraging people to look for new ideas.

“As more people become aware of the substantial cost savings and other advantages offered by salary sacrifice for cars, it will become a highly valued perk in companies that offer it.”