1.What is a salary sacrifice arrangement?
Salary sacrifice is an employee benefits scheme that allows you to pay for a car out of your gross monthly salary. In view of the fact that the salary sacrifice comes out of gross pay it reduces the income tax and National Insurance you will be paying.
2. So, in addition to taking a salary sacrifice, what are the other costs?
You will, in addition to taking a salary sacrifice, have to pay a benefit in kind on the car you are provided with. The benefit in kind is determined by reference to the list price of the car.
If you are provided with a vehicle with a list price of £35,000 with a benefit in kind rate of 2% you will pay:
– If a 20% taxpayer the monthly tax is £11.67 per month
– If a 40% taxpayer the monthly tax is £23.33 per month
3. How can I work out how much this is going to cost me?
We have a tool you can use to work out what the cost of this will be
4. What is the eligibility of the scheme?
It is a matter for your employer to decide who in their workforce they will permit to join the scheme. It is important to bear in mind that you cannot enter into a salary sacrifice scheme if that results in your salary being reduced below the National Minimum Wage (NMW).
5. How do I enter the scheme?
You will be required to read and agree to the scheme rules and to enter into a formal agreement with your employer to the salary sacrifice.
6. How long must I agree to be in the scheme?
A salary sacrifice must run for a period of 12 months, but it is likely that your employer will want to provide the vehicle for a longer period. This will be made clear in the scheme rules. Our schemes run from 12 months to 48 months in duration.
7. Can I leave the scheme inside the 12 month period?
You will formally leave the scheme if you resign or leave your employment. In other situations, the tax rules permit you to leave the scheme if you experience a ‘lifestyle change’. It is up to you to agree with your employer if there is a change in your circumstances whether this constitutes a ‘lifestyle change’. The tax rules do not prescribe what these may be, but HMRC guidance suggests it may include marriage, redundancy, or bereavement.
8. What impact could a salary sacrifice have on me?
If you are looking to take out a mortgage or other form of credit, then you may be impacted because your salary taken into account by the Financial Institution may be after part of your salary has been salary sacrificed.
9. What about my pension and other employee benefits?
The pension contributions will be determined on your ‘notional salary’ which is the salary you received pre-salary sacrifice so on this basis it will not impact on your pension. A similar position will be the case for any other benefits which are determined by salary.
10. What is included in the vehicle package?
The vehicle will be provided inclusive with:
- Breakdown cover
In some cases, vehicle insurance will be provided by your employer. Please check with your scheme administrator to confirm the details.
11. What is the insurance cover I will get?
If insurance is included in your scheme, the scheme administrator at your employer will provide full information.
12. What if I use my car on business travel?
Your employer can reimburse you a mileage rate of 9p per mile* which is tax free. *subject to the current HMRC advisory fuel rates which is revised quarterly.
13. What about charging?
There is a wide choice of solutions to charge your new electric vehicle. Bounc-e will be with you every step of the way to ensure you are offered the best solution depending on your home, your mileage, and the vehicle you decide to buy.
14. Is there a limit on the vehicles I can acquire?
This will be set by your employer, please speak to your scheme administrator for confirmation.
It is important that the level of the salary sacrifice required for the vehicle(s) does not leave you earning below the National Minimum Wage.
15. Are there any other costs I may incur?
You could face some costs at the end of the agreement if the vehicle is returned damaged or with excessive wear and tear. Also, there could be an excess mileage charge incurred if you exceeded the contract mileage. You will receive a copy of the BVRLA fair wear and tear guide when you take delivery of your new car for guidance.
16. What is excessive wear and tear?
The BVRLA guide will outline this in full but as the guide suggests, it is fair to represent the vehicle being used over the period of the agreement.
17. What is excess mileage?
Excess mileage could be chargeable if you exceed the mileage stated when you chose your car.
18. What happens at the end of the agreement?
You will be required to make the vehicle available for collection at a time and date which will be arranged by the vehicle provider two to four weeks before the date your agreement ends. Subject to there being no excessive wear and tear and the mileage not exceeding the contracted mileage then there will be nothing further to pay.
19. Is there anything else I would be required to do?
It would be sensible to contact HMRC and alert them to you having an electric vehicle with details of the list price so that they can revise your tax code with the relevant benefit in kind. In contacting HMRC you will require your National Insurance number so they can verify your identity.
1.What is salary sacrifice?
Salary sacrifice is an employee benefits scheme that allows your employees to pay for a car out of their gross monthly salary. In view of the fact that the salary sacrifice comes out of the gross pay of an employee it reduces the income tax and National Insurance they would be paying.
It is important to appreciate that since changes to the tax rules in 2017 salary sacrifice only works on ultra-low emission cars with a CO2 emission below 75g of CO2/km from the tailpipe.
Salary sacrifice is also popular with pension contributions, the bike to work scheme and childcare vouchers.
2. Is this arrangement caught under the OpRA tax rules?
At present for cars with a CO2 emission below 75g of CO2/Km it is not necessary to consider the OpRA tax rules. So, in that circumstance the employee is only taxed to a benefit in kind on the list price of the vehicle and no consideration is taken of any sum sacrificed.
3. How do I set up a sacrifice scheme?
It is necessary to have an agreement in place with your employees who enter into a salary sacrifice scheme to demonstrate that their rights to salary are reduced to reflect this agreement. It is also important to ensure that the employee’s payslip reflects this change. At Bounc-e, we provide you with all the paperwork, including HMRC compliant processes’, along with systems to administer everything within the scheme.
4. How do I get this paperwork drafted?
We will provide you with the suite of documents that are required which we have had prepared by our appointed advisers.
5. Are there any other factors I need to consider?
It is not possible to allow an employee to go into a salary sacrifice arrangement if it would mean that their salary goes below the National Minimum Wage (NMW). In view of this you will need to consider what happens for an employee who goes on maternity or long-term leave – this is picked up in separate questions (see 7).
In addition, you need to consider what to do in respect of pension contributions if these are determined by reference to earnings or other benefits like a bonus plan. Again, these points are picked up in a separate question (see 13).
6. How long does a salary sacrifice have to be in place for?
HMRC guidance suggests that if a salary sacrifice does not run for a period of at least 12 months any sum sacrificed could be taxed under ‘money’s worth’ rules. There are no other restrictions over the period the salary sacrifice agreement is set up.
7. Can the salary sacrifice be terminated early?
The rules permit a salary sacrifice to be terminated early for an individual employee if there is a ‘lifestyle event’. The tax rules do not define what is considered a ‘lifestyle event’ but the HMRC guidance suggests this will cover situations like redundancy, marriage, divorce, or bereavement.
If, therefore, because of a change in an employee’s circumstances, they claim to have had a ‘lifestyle change’ before agreeing it would be sensible to approach HMRC or seek professional advice that the employees’ circumstances can warrant a ‘lifestyle change’.
In any event if the employee resigned or ceased to be employed by you then that would trigger the termination of the agreement.
8. Do I need to get HMRC approval before starting the salary sacrifice arrangement?
No, HMRC has detailed advice on their website and it is important that you comply with this. That guidance is generally around making sure there is a change in the employee’s contractual pay and that this will not leave an employee earning below the National Minimum Wage (NMW). We have taken both tax and employment law advice in putting our documentation pack together.
9. Are these beneficial tax rules likely to be closed down?
At present an employee taking an electric vehicle on these arrangements pays a benefit in kind of 2% of the list price of the vehicle provided. There are no announcements or warnings which suggest that the government is intending to close this down. Of course, the government can at any time decide to change the rules.
10. Why is salary sacrifice attractive to employees?
It means that they can get an electric vehicle at a substantially cheaper cost than if they tried to purchase the vehicle privately. This is because of the tax and National Insurance savings by the salary sacrifice which are used to cushion the costs of the vehicle. This is coupled with the fact that the rate of benefit in kind on an electric car is substantially less than a petrol/diesel equivalent.
11. What do employees need to be aware of before entering into an agreement?
That their gross pay will be reduced by the amount of the salary sacrifice which may impact on any application for a mortgage or other form of credit.
The employee also needs to be aware that in addition to taking the salary sacrifice they will be required to pay the benefit in kind which is determined by the list price of the particular vehicle.
12. How can the employee work out the financial impact of entering into a salary sacrifice?
We have a tool which the employee can use to determine the cost to them of joining the salary sacrifice scheme. This can be demonstrated and then will be provided for all eligible employees when the scheme is offered.
13. What do I need to do about the employee pension scheme?
If the pension contributions in the scheme are determined by the gross salary of the employee, then if an employee enters into a salary sacrifice arrangement the amount of their pension contributions will be reduced by the amount sacrificed. It is sensible to talk to your pension scheme adviser to see if the pension rules permit for the salary to be determined by reference to a ‘notional pay’ figure. This would be the amount of the pre-sacrificed salary.
If the pension scheme rules do not permit the use of a ‘notional salary’ and they cannot be revised to allow this, then you would need to alert your employees that an implication of joining a salary sacrifice scheme would mean that the amounts which would be paid into their pension would be reduced.
14. What do I need to do in regard to other benefits provided to employees?
It is important to consider whether in addition to a pension scheme there are any other benefits which are provided which are calculated by reference to salary. This may for instance be a bonus arrangement. It will be necessary to see if these arrangements can be revised to provide the benefit by reference to the pre-sacrificed earnings which are often called the ‘notional salary’.
15. What happens for those employees on long term sick or maternity?
In this situation you can still continue to operate a salary sacrifice arrangement subject to that not leaving the employee concerned with earnings which fall below the National Minimum Wage (NMW). If this does become an issue, then you would need to revise the sacrifice to leave the employee at the NMW.
When you have to reduce or suspend the salary sacrifice you can either decide to carry the cost impact in the business or agree with the employee concerned that when their circumstances change, and their earnings increase, arrangements will be made to address the shortfall.
It is sensible that you make clear your approach to these situations in your policy documents. We remain on hand to help you with this process.
16. How do I obtain the vehicles required by the employees?
We will provide you with vehicles on a lease arrangement subject to your requirements. We will be happy to agree a term for the lease of the cars and to provide a quote based on the anticipated mileage of the vehicle.
17. What will a lease cover?
Vehicles provided under a lease agreement will include the following:
- The vehicle
- Breakdown cover
18. What additional costs could the employer face?
The employer will need to consider insurance for the vehicle and there will be added costs if the vehicle is returned at the end of the lease period with excessive mileage or issues over ‘wear and tear’.
In addition to the above the employer will be liable for Class 1A National Insurance on the vehicle but this can be met from the saving in Class 1 National Insurance on the employee’s salary sacrifice.
19. What do I need to do about insuring the vehicle?
Because the vehicle is a company car it is likely that the employee will expect you to provide this fully insured. Clearly the costs associated with insuring the car can be taken into account when determining the level of the salary sacrifice.
You will need to consider the level of cover you provide whether that extends to the partner of the employee concerned or to other family members or friends. It will also be important to decide whether the insurance will extend to cover overseas journeys in the vehicle by the employee.
You may also wish to consider introducing a charge on employees to cover in part the policy excess in the event of an accident.
20. What impact will the introduction of a salary sacrifice scheme have on my balance sheet?
This is a matter you will need to discuss with your Finance Director who may wish to seek the opinion of his/her auditors.
21. What do I pay employees for the use of the electric vehicle on business travel?
The current mileage rate of 9p per mile can be claimed by employees when using an electric car on business travel. This amount is free of income tax/National Insurance.
22. Do I need to consider putting charging points in the office?
It is a consideration that we are happy to look at and arrange through our partners, but at Bounc-e, we will offer solutions directly to your employees depending on their home, mileage, and the vehicle they choose.
23. Do I need to provide my employees with charging points at their homes?
No. Although charging is a major consideration, we suggest further discussion around your company’s approach.
24. Should I be reimbursing employees for their electric at home for charging?
No. There is an advisory business mileage for electric vehicles as covered in point 21. As part of our service, we can offer advice to your employees around how best to charge their vehicle, including home chargers and home energy tariffs.