The Evolution of the Salary Sacrifice Car Scheme: Understanding its Place in the Modern Reward Managers Portfolio

Salary sacrifice cars are considered a relatively new and lesser-known benefit. What you may not know is that the scheme has been around for over a decade. Compared to more established benefits it’s still an infant. Sadly, from lack of awareness, only 5% of our audience (at talks) are aware of this benefit. Salary sacrifice went through changes, which may make many believe they can’t partake in this scheme; how wrong they are.

How Has the Scheme Evolved, and How Can it Motivate your Team?

Salary sacrifice first came about in the early 2000s. This allowed employees to leverage the ‘buying power’ to take advantage of corporate discounts and funding, all through their pre-tax salary. Through buying via their employer, they’d save tax and NI, for everything from cycles to childcare. In the middle of the last decade, the first car salary sacrifice was born. Of course, following a change in the benefit in kind tax on company cars. Originally, for the larger employers, the scheme allowed an employee to give up their salary in exchange for a benefit. In this case, a fully-funded lease car. They also benefit from favourable corporate discounts, VAT savings, NI savings and tax savings. Schemes were popular as company car tax was low, but the preserve of the larger employer.

In 2012, We Joined the Party…

From our first customer, who had 20 employees, to now, with our largest customer having over 10,000 employees! We make salary sacrifice cars work for all. At first, the savings were fairly large on all cars. Though, as the years progressed, company car tax escalated on more polluting cars. Thus, meaning that today, only electric, plug-in hybrids and the cleanest petrol and diesel cars work on the scheme. However, salary sacrifice itself continued to grow up to 2016. They fuelled the take-up of everything from iPads to wine, HMRC had to take a stand!

In 2016, HMRC Made Some Salary Sacrifice Changes…

To be brutally honest, they had no choice. There were employees saving thousands in tax. Whether it be on big-screen TVs or American freezers. It was all at the expense of the taxpayer, and normally only for larger employers. HMRC acted to remove tax savings on most benefits, meaning you can still sacrifice for washers and wine. The employer’s financial benefit is removed and the employee tax-saving is wiped out by a corresponding benefit in kind, however, greener cars were largely unaffected. Although the rising burden of company car tax was eroding an increasing amount of saving. In a signal of future intent, HMRC prioritised employee mobility and the environment. This excludes the greenest cars and pedal bikes from all changes. But we had to wait another few years to see the product range and tax system truly catch up.

Fast Forward to 2020, What Will it Bring?

Well, salary sacrifice still exists. It tends to be driven by aims to improve employee morale and wellbeing, rather than driving NI savings for the employer. Childcare vouchers have evolved with winners and losers, and so have car schemes. The government have slashed ALL company car tax on the cleanest cars for 2020, with just a 1% charge in 2021 and 2% in 2022. To put this into perspective, the savings from salary sacrifice cars, volume discounts, VAT, Tax and NI reduce the costs by half compared to retail. Even for 2022 rates, the savings are huge!

The manufacturers have also come to play, with over 2,000 electrics, hybrids and cleaner petrol/diesel cars available that work on such schemes. The benefits aren’t just financial though. Schemes hugely aid mental wellbeing and ease financial stress with no unexpected costs. The biggest benefactor, however, is the planet.

The Best News of All Though…

Despite the salary sacrifice changes, the schemes are accessible at no cost to you. no matter your company size, with no fear of being left with cars, should your employees move on.

Although, with benefits like this in play, why would they?

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