Salary Sacrifice Savings: How Do They Stack Up
Salary sacrifice has been a reliable asset to all reward professionals for a while. The premise is simple. First, the employer will provide and pay for the service. Then the employer will deduct the cost from the employee’s gross salary. The employee saves income tax and national insurance. However, the benefits vary from one to another. Some benefits can attract more discounts from the employer. On the other hand, some benefits are also taxable. So, how do salary sacrifice savings stack up?
The First Thing to Understand about Salary Sacrifice?
It’s used by the government to help meet its aims. For example, you can salary sacrifice for bikes because that may help the NHS. Similarly, you can salary sacrifice for your pension because that eases dependency on state benefits. The cherry on top: you can salary sacrifice for cars. The cleanest cars offer more savings because of their green credentials. In general, with most salary sacrifice benefits the tax saving is removed which results in employees just saving national insurance. Though with bikes, pensions and legacy childcare schemes, there are other benefits.
What About Cars?
While certain cars have some huge savings, others could cause a sting. The ones doing the damage are the ones that do not fit into the government’s goals of the scheme. It’s not only tax and NI you’ll save, but you’ll also save on corporate discounts. These may be from your employer and scheme providers purchasing power. You can also save most of the VAT compared to leasing or buying a new car privately.
Salary sacrifice cars are lease cars with (typically) everything included, except fuel. What this means is that you’re effectively paying to use a car, kind of like a subscription service. If your employment ends mid-term, you can usually hand the vehicle back. Otherwise, you would commit for 2 or 3 years. You’ll save on the whole package by bundling in insurance, maintenance and tyres. This can give savings of around 45%! Don’t get too excited yet though!
Salary Sacrifice is a Taxable Benefit
If you pick a pension scheme, you’ll pay income tax. If you choose a pushbike you will pay tax on the end value. With cars, it depends on how polluting the car is. A pure electric car, such as a VW e-Golf, means you pay no company car tax in 2020! From there it’s just £6 a month in 2021, which is what grants you those savings of up to 45%! That’s less than the cost of keeping a 5-year-old diesel Focus or Golf on the road! If you’re not ready to go full electric you can opt for a hybrid, paying around £60 company car tax, which reduces your savings. Furthermore, if you go for a souped-up Golf, you’ll pay company car tax it will erode all the savings and then some, making the car more expensive than retail!
Keep the Car Clean to Keep the Price Keen
We’re not talking bodywork here but tailpipe emissions. To get the best savings, you need to avoid the tailpipe altogether! That way you can save 45% compared to retail. In addition to this, you’ll benefit through your monthly charging expensive totalling £10 as well as no clean air zone charges in cities! With an EV, in some cities, such as Nottingham, you can even drive in bus lanes.
So that’s it, the key to maximising the savings of salary sacrifice! If you want to know more about electric cars, don’t forget to download our electric revolution guide, it’s free!