What is salary sacrifice?

Have you considered offering a salary sacrifice scheme to your employees?

An enticing non-cash benefit for you and your employees, we’ve broken down what salary sacrifice is so you can make the right decision for your business

Salary sacrifice isn’t a new concept.

It’s been around for years, with popular salary sacrifice schemes including Cycle to Work, increased pension contributions, childcare vouchers or healthcare. 

But the interest in offering an electric car salary sacrifice scheme is growing, with employers recognising that it can be a powerful tool to recruit, reward and retain employees.

Just like any other salary sacrifice scheme, an electric car salary sacrifice scheme allows employees to sacrifice a fixed amount of their salary each month in exchange for a brand-new electric car lease.

And because the deal goes through your business, your employees can access your company’s buying power and the discounts available to business leasing customers, so they can often get a much nicer car through salary sacrifice than they’d be able to on their own, or with a car cash allowance.

It’s no wonder that it’s such a popular employee benefit.

Best of all, the scheme comes at no extra cost to your business.

As fleet vehicle supply specialists, Corparison can offer your employees substantial savings on all the latest electric vehicles – at the most competitive internet prices.

How does salary sacrifice work?

Salary sacrifice is a simple process, and Corparison can simplify it even further by assisting the implementation and management of the scheme, supporting all communication to the wider business and providing guides to your payroll teams.

With all the admin taken care of, you can focus on the important day-to-day tasks of running your business.

There are four steps to salary sacrifice:

1. The employee exchanges a portion of their gross salary to pay for the net cost of the lease and the Benefit in Kind (BiK) tax.
2. The employee benefits from savings on National Insurance Contributions (NIC) and income tax on the remainder of their gross salary, while you as the employer benefit from savings on Class 1 NIC.
3. The employee gets to drive a brand-new electric car that’s more affordable than a personal contract hire deal would be.
4. You can sit back and reap the rewards of being a green, forward-thinking business.

What are the benefits of a salary sacrifice scheme?

A salary sacrifice scheme offers numerous benefits. These include:

• Tax savings

Unfortunately, after tax changes in 2017, there are no savings to be had on salary sacrificing combustion engine cars because of the higher BiK tax. 

However, with Benefit in Kind tax on electric cars being fixed at 2% until 2025, and only rising 1% per year until 2028, there are still major tax savings to be had on an EV salary sacrifice.

Employees can save on NI and income tax, and your business can save on National Insurance and pension contributions.

• Fuel savings

Charging a car, despite soaring energy costs, still tends to work out cheaper across the lifetime of the vehicle compared to filling it with petrol or diesel.

Offering workplace charging points will make the salary sacrifice scheme an even more attractive prospect, and there are grants like the Workplace Charging Scheme that can help you cover some of the upfront costs.

• Hit sustainability goals and reduce your carbon footprint

With the 2030 petrol and diesel ban looming, offering an electric car salary sacrifice scheme will not only save your employees money on a brand-new electric car lease, but will also help you future-proof your business.

Before too long, every car sold or leased in the UK will have to be electric.

Get ahead of the curve now, help your employees make the transition to electric, and reap the benefits that come with having a greener, safer and more sustainable business for years to come.

• Improve employee satisfaction – at no extra cost

The best thing about a salary sacrifice scheme is it doesn’t cost you any extra.

But it does go a long way in both attracting and retaining your top talent.

It’s also a way of alleviating some of the hierarchical issues that can crop up with company cars, because you can offer a salary sacrifice scheme out to the wider company, rather than reserving it for senior members of staff.

How much could I save with a salary sacrifice scheme?

Employees can expect to save between 30 and 50% on a salary sacrifice car, compared to leasing directly through a broker.

This saving takes into consideration the amount of salary the employee sacrifices minus the savings made in taxes.

In real terms, using Corparison’s market-leading salary sacrifice calculator, this could look like the following:

There are hefty savings to be had – especially if your employee falls into the 40% tax bracket – and it’s a good way of getting a more expensive car for a much more affordable price. 

It’s a win-win situation for you and your employees.