As businesses and households
try to rebuild their balance sheets after the credit bubble, a
product that offers both sides the chance to save some money is
certain to attract attention.
Salary sacrifice, which exploits the tax
advantages of cleaner cars and the purchasing leverage of car
leasing companies, is very much the product of the moment.
Go deeper with GlobalData
Motor Finance readers will undoubtedly be
familiar with the way Salary sacrifice works.
Briefly, it takes advantage of situations where the
current BIK (benefit-in-kind) incentives for
environmentally-friendly vehicles mean that such cars can be less
expensive to acquire if employees take them as a benefit rather
than opting to buy them privately out of taxed salary.
It also helps the employer financially, because the
lower level of tax paid by the employee results in lower Class 1A
National Insurance (NI) contributions.
Salary sacrifice is virtually tailor-made for the
current employment market. It is ‘green’ in that employees must
choose low CO2 cars to make the greatest savings. It can be used to
offer car benefits to the entire employee base in an affinity-type
scheme or as a highly efficient way to provide lower CO2 cars to a
car-eligible population.
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By GlobalDataAt a time when many employees are finding it hard
to obtain consumer credit and to make ends meet at home, and when
morale at work is suffering, employers can thus boost motivation by
offering all staff, at little or no cost to the company, a new
benefit that will not only save employees money, but which also
demonstrates an implicit a two- or three-year commitment from the
business.
For example, over a three-year, 36,000 mile
contract, acquiring a £12,000, 119g/km car via a salary sacrifice
arrangement might cost an employee £2,000 less than a private PCP
deal.
The savings come via the greater manufacturer
discount available to the leasing company that supplies the salary
sacrifice car, together with the employee’s reduced income tax and
NI in exchange for a monthly BIK payment of only £26.
Taxman-approved
Salary sacrifice is the opposite of
earlier tax-efficient, employee ownership-based car leasing
products, which aimed to deliver cars in such a way as to obviate
liability for BIK. As such, customers do not need to be worried
about incurring the disapproval of HMRC.
Yes, the government ‘loses’ some income tax revenue
but this is easily offset by the boost to consumer confidence and
by additional new car sales.
Although an employer could in principle acquire its
own cars and set up a scheme, it is better to use a car leasing
company, thanks to the greater manufacturer discount that the
leasing company can negotiate on the cars.
The leasing company may also offer additional
features such as online quoting and ordering, early termination
insurance and motor insurance to mitigate the risks to both the
employer and employee.
Compensation and benefits consultancies are
actively targeting HR decision makers with what they see as an
easy-to-sell, green, benefit solution – but the opportunity is also
clearly there for leasing companies to take the lead in offering
customers a very attractive, broad-based benefit with a distinctly
environmentally-friendly face.
This is especially so since leasing companies are
in a strong position to capitalise on salary sacrifice’s benefits
as a core vehicle funding solution within the ‘traditional’ fleet
as well as its wider appeal as a benefit suitable for all
employees.
The author is director of
Alphabet
