Since the first scheme was launched eight years ago, salary sacrifice schemes have grown in popularity – particularly over the last couple of years. In 2014, 5% of cars provided by FN50 leasing companies were funded through these schemes – and that figure has grown considerably since. As a result, global strategy consultant OC&C predicts that they could account for up to 10% of all new car sales in the UK by 2025. So what are the benefits associated with them?

How a salary sacrifice scheme works

Salary sacrifice schemes allow businesses to give employees the option of relinquishing part of their salary for the non-cash benefit of a new lease car. Usually focussed on larger corporations and businesses, Fleet Evolution have bridged the gap, working exclusively with SMEs. Our smallest customer has just 17 employees, with our largest boasting 2,500.

What are the benefits for the employer?

Salary sacrifice car schemes are typically low-cost or cost-free for an employer to introduce. Producing savings for employers on NI contributions and corporation tax, employers – although they still have to pay NI contributions on the provision of the car – this cost is usually much less than the employer NI contributions that would have been due on the portion of salary sacrificed. Research has also shown that businesses have saved money by using these schemes to strengthen employee retention and attraction in recruitment.

What are the benefits for the employee?

The salary sacrifice scheme gives them the chance to own a brand new car at a cost they can afford. Maintenance, servicing, breakdown cover and insurance are normally included in the price, making for complete hassle-free motoring. The salary sacrifice car scheme requires an employee to forgo a portion of their gross salary in exchange for savings on tax and national insurance (NI). The employee will save tax and NI on the sum that has been sacrificed, and the value of the car benefit is subject only to benefit-in-kind (BIK) tax. Due to tax-breaks, many of the vehicles offered are low-emission, meaning that running costs can be significantly lower.

What are the risks?

The risks to both employers and employees are relatively low. Some employers worry about being hit by early termination fees and the long-term absence of scheme members, however the suppliers take away the risk from employers in order to protect them from such unforeseen circumstances. For employees, the idea that they will earn less can be an obstacle. However the benefits highlighted above are often more than enough to counteract this.