With our intuitive calculator, you can swiftly determine the potential savings you stand to gain when opting for a green vehicle through our esteemed salary sacrifice scheme. Dive in and discover the benefits for both employees and employers alike, and join us in driving the future of sustainable motoring in the UK.
Calculate Salary Sacrifice Savings for An Electric Car
Looking for a salary sacrifice car calculator? You’re not alone! Most require you to sign up and commit before you even see the final list price or costs – pretty frustrating, right? Sometimes, you might just want to sort a senior manager’s lease car into a salary sacrifice scheme without the hassle of third parties. So, let’s break it down: how do you crunch the numbers for electric cars?
The first thing to be aware of is salary sacrifice cars are essentially business contract hire cars packaged into an HMRC-compliant scheme. At the core is a traditional company car offered for a set period, after which it returns to the supplier. As such, the cost calculation is fairly simple: determine the company’s expense and pass it on to the employee.
How Does it Work?
The principle is relatively straightforward:
A car salary sacrifice calculator determines the cost savings an employee might achieve by opting into a salary sacrifice scheme for a car instead of taking the equivalent salary. The employee agrees to forgo a portion of their pre-tax salary in exchange for a leased vehicle, often resulting in net pay increases and tax and National Insurance savings. The calculator factors the vehicle’s value, potential tax benefits, and other related costs to estimate monthly savings and the adjusted take-home salary. This tool aids employees in making informed decisions about participating in such schemes.
Breaking Down the Costs: Four Key Components
When considering the net cost of a business contract hire car, there are primarily four elements to keep in mind. Firstly, there’s the ‘finance’ cost, which covers depreciation and the road fund license. Then, we have the ‘services’ cost, encompassing maintenance, tyres, and management. VAT will be added to these costs, but if you’re VAT registered, you can typically reclaim all the VAT on services and half of the VAT on finance. It’s a peculiar VAT rule but a longstanding one. Combining all these gives us the ‘effective’ rental price.
Don’t Overlook the National Insurance Component
Remember, there’s the aspect of the tax and National Insurance (NI) that employers need to account for. When an employee benefits from a car, the employer will incur NI costs, which are notably lower for electric vehicles. This charge will be passed on to the employee. However, the silver lining is the savings you’ll make on National Insurance from the gross payroll deduction. If desired, this saving can be redirected to reduce the employee’s costs.
The Outcome? Savings for Employees.
Employees stand to gain significant savings, not just from their NI and tax reductions due to gross pay deductions but also from the recoverable VAT and any redirected employer’s NIC savings. These elements combined significantly enhance the tax savings for employees. For businesses contemplating offering such benefits, especially to non-equity-holding directors, seeking the expertise of a specialist is highly recommended. While costs might slightly increase with expert involvement, it safeguards against potential risks, streamlines admin, and ensures the company or employee secures a deal far more economical than standard retail offers. In essence, it’s a win-win for both parties.
Are You an Employee or Employer?
Are you an employee or an employer? Take a look at our designated Electric car salary sacrifice calculators.
The Employee Car Salary Sacrifice Calculator
Here’s how it works:
The calculator estimates the net cost of car salary sacrifice for the employee, including:
- The necessary salary adjustments due to the Car Salary Sacrifice.
- The variation in tax, NIC and pension scheme contributions when comparing regular ‘cash’ pay and Car Salary Sacrifice.
- A comparison of the employee’s net pay and the total net value of their salary package before and after the Car Salary Sacrifice.
The Employer Car Salary Sacrifice Calculator
For employers, this calculator offers insights into the financial aspects of providing a car salary sacrifice scheme, including:
- The employer’s obligations concerning national insurance contributions.
- Employer’s contributions towards the pension scheme.
- Details on VAT recovery and the associated business tax relief.
- A holistic view of the employer’s total expenditure on Car Salary Sacrifice, both before and after availing tax reliefs and recovered VAT, impacting the net pay and monthly savings.
We hope to cover lots of different permutations of pay, bonus, overtime and pension benefits, but don’t worry if your exact arrangements aren’t shown! Please don’t hesitate to reach out to us via call or email to discuss your individual needs.
What Are the Benefits?
Employees and employers can both see various benefits of salary sacrifice. See some examples here:
For Employees
- Reduced National Insurance Contributions: Opting for salary sacrifice means employees often pay lower income tax and national insurance contributions, helping them save money.
- Decreased Tax Liability: By reducing their pre-tax salary, employees can potentially lower their overall taxable income, resulting in less tax paid and cash alternative benefits.
- Access to Non-Cash Benefits: Beyond financial savings, salary sacrifice provides employees the opportunity to enjoy non-cash benefits, which can enhance their overall compensation package and work-life quality.
For Employers
- Enhanced Employee Satisfaction: Offering salary sacrifice schemes can significantly boost employee satisfaction. Such benefits often lead to higher morale and a more motivated workforce.
- Savings on National Insurance: Employers, too, stand to benefit from reduced national insurance contributions when they implement salary sacrifice schemes.
- Improved Recruitment Prospects: In an increasingly competitive job market, offering attractive benefits like salary sacrifice can give employers an edge, making it easier to attract and retain top talent.
Kickstarting Your Journey
You will need the following in order to get started with the electric car salary sacrifice calculator!
For Employees:
- Your latest payslip, which should detail your monthly earnings, tax code and tax bracket.
- A monthly business contract hire estimate for your chosen car, inclusive of maintenance and breakdown services.
- The car’s annual insurance quote.
For Employers:
- A monthly contract hire estimate for the vehicle your employee desires, complete with maintenance and breakdown services.
- The yearly insurance premium for the said car.
- Your company’s prevailing tax and VAT reclaim rates.
- A clear stance on whether you’ll recoup the non-reclaimable VAT from the employee on contract hires.
- For non-electric cars, a decision on whether to recoup non-recoverable business tax relief on lease rentals from the employee.
Not all set with the above? No worries. You can still estimate the cost impact using values our Electric Car Salary Sacrifice calculator will provide automatically.
How Long Will It Take?
If you’re armed with all the information, then the Electric Car Salary Sacrifice calculations take just a minute or two, regardless of whether you’re an employee or employer.
If you’re missing a few details, allow about 5 minutes to work through the stages of the calculator.
When is it Not Possible to Use Salary Sacrifice?
Salary sacrifice is not permissible in certain scenarios, such as:
- When an employee is on minimum wage.
- When an employee is receiving statutory pay.
- They are undergoing pension auto-enrolment.
- During redundancy pay calculations.
- Specific tax and national insurance limits.