What is Salary Sacrifice for cars?

You may provide a Company Car to an employee and in return the employee will sacrifice a sum of their gross salary. Normally these schemes are designed so that the sum sacrificed by the employee meets all of the costs to your business of providing the car, including items such as insurance, early termination cover, service rebills and damage charges.

Having sacrificed salary the employee saves paying income tax and National Insurance on that Salary instead paying tax on the Company Car Benefit. No employee NICs are payable on the car benefit. Salary Sacrifice schemes are particularly attractive where CO2 emissions are low and the resulting Company Car tax is substantially less than the tax and NI that would have been paid on the sacrificed Salary. As the cars provided to employees are Company Cars they can also be used for business travel. This reduces the requirement for the use of pool cars/hire cars by these employees or reduces the level of business mileage reimbursements.

The greater breadth of company cars would provide for additional flexibility, especially in the case of employees that leave. Cars can easily be redeployed with a different driver under Salary Sacrifice arrangements (car policies need to be structured carefully so that any cars requiring redeployment are attractive and appropriate for other employees), or can be utilised for essential car users. Salary Sacrifice promotes the take up of environmentally friendly cars, aiding 'green agenda'. There is a potential early termination exposure where staff attrition rates are high and vehicles can not be easily redeployed.

Please see question relating to NEW RULES IMPACTING SALARY SACRIFICE ARRANGEMENTS re rule changes which went live in April2017.