Is Salary Sacrifice Worth it?
Salary sacrifice, also known as salary exchange, is an arrangement where you agree to forgo part of your salary in return for benefits of a similar financial value. The most common type of salary sacrifice arrangement is for employee pension contributions, but it can also be used for other benefits, including childcare, cycle-to-work schemes, and cars.
In this article, we are going to take a closer look into what salary sacrifice schemes are and how they can let you pay less for income tax and national insurance contributions. Essentially, you take home a lower salary, but the benefits can make it totally worth it. We will look at salary sacrifice for employees and the advantages and disadvantages of opting in for salary sacrifice deduction.
What Is A Salary Sacrifice Scheme?
Not everyone has heard of the term ‘salary sacrifice‘; this may sound unfamiliar and confusing to some. However, it’s a straightforward process with many benefits for the employer and employee!
Salary sacrifice is when an employee gives up part of their salary to receive non-cash benefits or benefits of a similar financial value.
For example, employees might sacrifice part of their income to make pension contributions and pay into their long-term pension pot. In this instance, the employee and employer would save on National Insurance and Income Tax contributions, as the employee’s salary is technically lower.
Other examples of salary sacrifice include childcare vouchers, cycle-to-work schemes and a salary-sacrifice pension scheme. Both of these allow employees to make savings whilst also taking a benefit that makes working life more manageable.
How Does Salary Sacrifice Work For Cars?
Well, firstly, it is important to note that salary sacrifice schemes are only available for brand new cars. This is because the premise of the scheme is to help employees afford brand new vehicles without having to take out a loan or pay any interest.
Under a salary sacrifice scheme, the employee agrees to give up a percentage of their salary in order to lease the car for a set period of time. The payments are then deducted from the employee’s salary before tax and National Insurance contributions are taken. This means that the payments are made pre-tax, which can result in significant savings for the employee.
At the end of the agreed lease period, the employee simply hands the car back to the leasing company. There are no additional costs or fees associated with this – it really is that simple!
With other salary sacrifice schemes, you don’t always have something that benefits you immediately. A pension scheme is beneficial, but sometimes it’s hard to feel like you’re getting anything for that money. With a salary sacrifice car scheme, you get a brand new car, tax savings, and with an electric car, lower running costs!
What Are The Benefits Of Salary Sacrifice Car Schemes?
As mentioned, a salary exchange is a more tax-efficient way to afford to save on national insurance contributions and income tax and even get a brand-new car! There are many reasons why sacrificing part of your salary is beneficial when looking for a car. Let’s take a look at them:
Confirmed Approval:
If you have a bad credit score or are struggling to find a lease deal that works for you, you will be approved for a salary sacrifice scheme, as the deduction is taken directly from your salary, just like tax contributions. Hence, your take-home pay is less, but your car is paid for without worry.
No Large Deposits:
Furthermore, you avoid large deposits or down payments associated with other finance options. You can make it even more affordable with no additional contribution. This makes it great to have a brand-new car with great cash benefits.
Electric Options:
Whether you’re concerned about the environment or simply want lower running costs, salary sacrifice also provides an electric vehicle option! Here at Fleet Evolution, our mission is to make electric vehicles more accessible and affordable than diesel options. For more on the benefits of salary sacrifice scheme, click here.
Do You Save A Lot On National Insurance Contributions?
It depends on how much you earn and how much you pay for the car; however, with a lower income tax and national insurance contribution, you may go into a lower tax bracket. This will mean that you’ll save significant amounts on national insurance contributions.
Why Choose A Salary Sacrifice Scheme For An Electric Vehicle?
If you’re interested in salary sacrifice, electric cars are the way to go. As we mentioned earlier, the payments are made pre-tax. This means you can save money on your electric vehicle without worrying about additional fuel costs.
Another great benefit of salary sacrifice is that it can help to reduce your carbon footprint. As electric vehicles produce zero emissions which is excellent for the environment, the government offer several incentives for people who choose to switch to electric vehicles. Now more than ever, it’s imperative that we begin to make environmentally friendly changes for the future.
Combined, their eco-friendly nature makes them more affordable than their diesel alternatives and offers a wide range of benefits. Contact our team of friendly professionals today!
What Are The Benefits Of Electric Vehicles?
Electric vehicles are the future. These days, more and more people are choosing to go electric. Let’s explore why:
Electric vehicles produce zero emissions, which means they are much better for the environment than petrol or diesel cars. Not only does this help protect the environment, but it is also more cost-effective as you won’t have any fuel costs.
In addition, electric vehicles are exempt from road tax and the London Congestion Charge. This means you can save money on travel costs if you live in or around London.
Here at Fleet Evolution, we take great pride in the fact that we can offer incredible deals for electric vehicles. At times, they can be expensive, as they are still a new type of vehicle, and the technology isn’t as common. However, with salary sacrifice, you can save money on your tax and have a new electric car (which will be cheaper to run) for a low monthly payment and no large outright fee.
What Are Hybrid Vehicles?
A hybrid vehicle is a vehicle that uses two or more different power sources to move the vehicle. The most common type of hybrid vehicle is a petrol-electric hybrid, which uses a petrol engine and an electric motor to move the car.
Hybrid vehicles are becoming increasingly popular as they offer the benefits of both petrol and electric cars. This can be a great way to transition into electric cars if you’re not fully ready to make that commitment.
What Are The Benefits Of Hybrid Vehicles?
Suppose you’re not ready to commit to electric cars fully. In that case, hybrid vehicles can be a great way to go, as the benefits of hybrid vehicles are often very similar to their electric counterparts.
Hybrid vehicles are cheaper than petrol cars because they use less fuel and have a longer mileage range. With fuel prices increasing daily, it can be a great way to cut down on unnecessary costs.
As they’re half electric, they produce significantly fewer emissions than petrol cars, which is great for the environment and makes them a more sustainable option long-term.
Is Salary Sacrifice Only Available For Company Cars?
If you’re self-employed and want to opt-in for a salary sacrifice scheme, you may wonder what your options are.
Unfortunately, salary sacrifice has been set up by your employer as it takes money from your gross salary, so if you’re self-employed, you don’t have this option. However, if your company offers these schemes, keep in mind that they can be a great way for employers to save on tax and their employees to receive a company car and additional benefits.
So, Is Salary Sacrifice Worth It?
In short, yes! Salary sacrifice is a great way to save money on your electric or hybrid vehicle. The payments are made pre-tax, which can result in significant savings for the employee. At the end of the agreed lease period, the employee hands the car back to the leasing company. No additional costs or fees are associated with this – it is that simple!
Salary sacrifice could be the perfect option if you want to save money on your electric or hybrid vehicle. Contact us today to learn more about our excellent salary sacrifice offers for electric vehicles!
Frequently Asked Questions
We’ve done our best to try and answer some of the most common questions regarding salary sacrifice:
What Are The Disadvantages Of Salary Sacrifice?
You’ll obviously notice less take-home pay each month after sacrificing part of your salary. Hence why, you have to earn the national minimum wage to be eligible.
You’ll also be tied into the scheme for some years, so if you don’t need a car long-term, then this might not be right for you.
Finally, salary sacrifice schemes can be complex, and advice from a financial advisor before setting up the scheme may be advised.
Is Salary Sacrifice Good For Employers?
Yes! Employer contributions can be reduced, and you can improve company benefits for employees. By giving employees the option to salary sacrifice things, such as a pension contribution, you can create a desirable benefits package, whilst reducing taxable income.
Does Salary Sacrifice Reduce Salary?
Yes, it technically reduces your salary, but you receive various non-cash benefits, including savings on pension contributions, fewer national insurance payments and much more!
Does Salary Sacrifice Save Tax?
As salary sacrifice reduces your salary, your income is lower. Therefore, so is the tax and national insurance you pay.
Can You Salary Sacrifice Statutory Maternity Pay?
SMP cannot be sacrificed or offset against other benefits.