Salary Sacrifice FAQs
1. What is included in the Salary Sacrifice Scheme?
The package is extremely comprehensive and includes the following for the life of the contract:
- All servicing and maintenance costs.
- The cost of unlimited Tyre replacements and repair.
- Fixed cost, fully comprehensive motor insurance for the Contract period with two extra named drivers allowed.
- Road tax for your vehicle for the term of your contract (at the prevailing rate).
- Full vehicle roadside breakdown and recovery service.
The employee will just have to pay for fuel/charge the vehicle and top up the oil.
2. What will the net cost to the employee be?
Depending on the vehicle they choose, the employee will save on Income Tax, National Insurance, possibly VAT (that the company reclaims and passes on to them in the form of a lower rental) and pension contributions (subject to the type of pension scheme the employer operates) on the salary sacrificed. The amount that they save depends upon their personal tax and national insurance position.
3. Could you get a similar deal by visiting your local franchised motor dealer?
No. The Income Tax, National Insurance and fleet discount savings are only available via a Salary Sacrifice Scheme.
4. On what basis is the car provided?
Once the employee has chosen their car, we will enter into a Contract Hire agreement for that car and will then provide it to them under the Salary Sacrifice Scheme. The car is classed as a company car for tax purposes and will be treated as a Benefit in Kind (BiK). At the end of the agreement, employees will have the choice to hand the car back or to request a price to purchase the car at the market value which will be based on the vehicle’s age and mileage.
5. Can an employee have more than one car under the Salary Sacrifice Scheme?
Yes, providing the overall amount of salary sacrificed does not take the employee below National Living Wage and is subject to authorisation from the provider.
6. Will quotations vary over time?
Yes. Changes can occur in the amount of discount offered by manufacturers and quotes will take account of the changing cost of particular cars, together with changes to finance rates. There will also be fluctuations in insurance prices which can alter the rentals. Please always confirm a quotation with us.
7. How long is a quote valid for?
All quotes are valid for a period of 30 days, but in order to accommodate the order acceptance process, the leasing company will refresh all quotations at the point of order if the above time limit has been exceeded. The employee will then have the opportunity to amend their car selection if the price has increased.
8. Is there a minimum or maximum term for the car scheme?
Yes, the scheme is restricted to either 24 or 36 months, although extensions may be offered on application at the original end of the contract for up to a maximum of 4 years.
9. Once the employee has chosen a vehicle, is the level of sacrifice guaranteed?
Once the order has been authorised, the sacrifice will be honoured (excluding manufacturer price increases or exceptional circumstances). If the rate of VAT increases or VAT rules change during the period that the car is provided, the provider reserves the right to adjust the salary sacrifice arrangement to reflect the additional net cost of VAT that they are incurring or are unable to recover in providing the car.
10. When will the car be ready for delivery?
This varies greatly depending on the car chosen. The waiting time can, on average, vary anywhere between 2 and 20 weeks. Some very popular vehicles which are in high demand can be even longer. An estimated delivery date will be available once the order is placed. If the employee needs to obtain a car quickly, let us know and we will search for stock or pipeline vehicles that are being shipped. If you are prepared to be flexible on colours and extras, we may be able to find a vehicle quicker than normal.
11. What if the employee changes their mind after placing an order?
They may cancel the order, but there may be a dealer cancellation charge payable. This would be a maximum of £500 unless otherwise advised. Bridle Vehicle Leasing will always endeavour on your behalf to avoid such charges, however this cannot be guaranteed.
12. Who is eligible to join the Salary Sacrifice Scheme?
For insurance purposes, the employee must have a full driving licence* and be aged 18 or above. If they are under the age of 18 or have a poor driving history, they may be refused insurance cover and cannot, therefore, participate unless authorised by the provider and without the insurance provision.
Employees also cannot participate if the amount of the salary sacrifice is considered to be unaffordable, so they must be sure that they can afford the vehicle they have chosen and commit for the term of the agreement.
The employee must also consider carefully whether they are planning to remain in the organisation's employment for the period of the chosen contract length. They will likely not be able to voluntarily exit the scheme without incurring termination costs.
An employee also cannot participate in the scheme should the amount sacrificed take their gross pay below the National Living Wage.
*Issued in the UK, EU, South Africa, USA, New Zealand, Canada or Australia
13. Does the employee have to be in full-time employment to be eligible for the Salary Sacrifice Scheme?
No, they do not. However, they will be unable to participate in the car scheme if the amount sacrificed results in their salary falling below the National Living Wage limit.
14. Can an employee take a car for anyone else?
Yes, they can take a car for themselves or another member of their household as long as they too have a full valid driving licence and meet the insurance criteria previously outlined.
15. The employee is on a fixed-term contract - can they participate in the Salary Sacrifice Scheme?
If an employee is on a fixed-term contract they can participate, provided that the Salary Sacrifice agreement ends before the end date of their employment contract. A minimum 2-year Salary Sacrifice Scheme contract applies.
16. Is there any impact on other pay and conditions?
From a pension perspective, the employee's pensionable salary will reduce and therefore their own and any contributions by the employer may reduce accordingly. If the employee is close to retirement, participation in the scheme may affect their salary for pension calculation purposes and they should therefore consider avoiding any salary sacrifice scheme in the calculation period. Please seek advice from a pension administrator for clarification.
Other payments or benefits that an employee receives from employment are unlikely to be impacted by the salary sacrifice. If you are unsure, please check with the HR department.
17. Does a Salary Sacrifice Scheme have any impact on state benefits?
Most state benefits will not be affected by participation in salary sacrifice, unless participation in the car scheme means that the employee's salary (after the sacrifice) is brought below the National Insurance Contribution's Lower Earnings Limit. To protect entitlement to certain future state benefits, an employee cannot participate in the Salary Sacrifice Scheme if their Adjusted Salary were to fall below the National Insurance Contribution's Lower Earnings Limit.
18. What is the effect on state pension?
There are two elements to the state pension, the Basic Element and the Second Element. The Basic Element is not affected by Salary Sacrifice, as earnings will not be reduced low enough.
The Second Element is an adjusted amount depending on what the employee earns above the minimum wage, known as the Additional State Pension or the State Second Pension. A Salary Sacrifice Scheme may reduce contributions for this element for the duration of the time that they participate in the scheme, although the impact on their final state pension is likely to be negligible. The employee should seek professional advice if they are unsure of the impact on their pension benefits.
19. What is a Benefit in Kind (BiK)?
The provision of a car under a Salary Sacrifice Scheme constitutes a Company Car arrangement and therefore triggers a Benefit in Kind charge. The benefit is calculated by reference to a percentage related to the CO2 emissions and list price of the vehicle. This CO2 related percentage determines the level of taxable BiK an employee is charged by HMRC. The lower the emissions, the lower the effective tax rate.
20. Will the Benefit in Kind (BiK) charge change in the future?
HM Revenue & Customs (HMRC) is keen to encourage drivers to choose vehicles with as low CO2 emissions as possible, and previously the set thresholds have been reduced annually. However, these percentages are starting to increase, which means it is likely that the BiK rate the employee pays could change during the term of their contract. They must be prepared to pay a higher BiK rate should the situation develop during their contract.
21. Will the amount an employee pays increase if the company car tax (BiK) percentage is increased?
The amount the employee sacrifices will remain the same, but if the company car tax rate (BiK) increases the additional tax will become payable and normally collected via a change to their tax code. The employee must be prepared to pay a higher BiK rate should the situation develop during their contract.
22. How will the tax on the Benefit in Kind (BiK) charged be taken from the employee?
The provider will notify the Tax Office when the employee takes delivery of a car, however, it is ultimately their responsibility to ensure HMRC are notified. The Tax Office will issue a tax code change which payroll will apply in order for the Benefit in Kind tax to be collected monthly from their salary.
In some instances, where HMRC cannot process the car details for new cars within the tax coding before the end of the tax year, there may be some adjustments regarding the collection of tax following the tax year end.
23. What happens if an employee takes maternity/paternity or sick leave?
They can continue to have use of their vehicle. The provider will cover payments for the vehicle if their pay falls to statutory minimum amounts. Any financial assistance is discretionary and may be subject to repayment on the employee's own terms.
24. Is there any impact on student loans?
If the employee has a student loan it is recovered at a rate of 9% on gross annual earnings above the £18,935 per annum earnings threshold (for Loan Plan 1, 2019-20). Under a Salary Sacrifice Scheme, the employee is agreeing to reduce their gross salary. This will result in a reduction in the amount taken in their student loan recovery because their gross earnings before the salary sacrifice are still above the earnings threshold but are reduced.
If, after taking into account the salary sacrifice scheme their gross earnings fall below £18,935pa, no deductions for student loans will be made.
25. Will it affect an employee's ability to get finance?
As their taxable gross salary will be reduced, payslips and end of year P60 forms will show a lower amount. This may affect their ability to get credit - for example, it may affect a mortgage application if the lender uses income multiples.
The provider would be willing to provide confirmation of their pre-sacrifice salary for borrowing purposes. Importantly, as there is no credit check involved in joining the Salary Sacrifice Scheme, there will be no record of any search on their credit history.
26: What happens if the employee decides they don’t want the vehicle after placing ordering?
They are committing for the term they selected. If they decide they no longer want the vehicle, they can obtain an early termination quotation at any time during the term of the agreement but they will be responsible for any charges arising.
27: What if the employee resigns?
If the employee leaves employment for any reason, they must return the car to the funder. The only exception is if their new employer is prepared to novate the lease into their name and operate a salary sacrifice arrangement.
If they leave voluntarily or are dismissed for disciplinary reasons before the end of the term, they will be required to pay a fee for early termination from their final full salary when the vehicle is returned. The amount of the fee will depend upon how much the vehicle costs to lease and the remaining term on their contract. If the fee exceeds their final salary payment, they may be required to reimburse the funder for any excess. If they are made redundant, the funder may cover any early termination costs arising dependant on the severance package agreed. If, after the return of the vehicle there are any damage or excess mileage charges due, these will be charged to the employee.
28: If an employee resigns, can they buy the car and if so would they still pay an early termination charge?
It may be possible to agree a value to purchase the car, which negates the need for any early termination fee but the employee will need to discuss this with the funder.
29. What happens if the employee retires on the grounds of ill health during the period of the agreement?
If the employee is forced to retire due to ill health, providing the vehicle was not damaged or has not exceeded its contractual mileage (pro-rata), there would be no termination charge. However, dismissal resulting from incapability would result in an early termination charge being levied against them.
30: What happens if the employee loses their driving licence on medical grounds?
They can simply return the vehicle with no termination penalties.
31: What happens if the employee is disqualified from driving whilst in the car scheme?
The employee may continue to participate in the car scheme but they must not drive the car. The may allow a named driver to drive the car on payment of any extra premium (if not already on the policy). Alternatively, they can opt to terminate the agreement but would then be liable for any early termination fees.
32: Who is responsible for arranging servicing of the vehicle?
You are responsible for ensuring that the manufacturer’s recommended servicing schedule is adhered to and it is imperative that you do so to ensure that the warranty is not invalidated and avoid incurring any additional charges. For insurance services to remain valid the first and subsequent service of the vehicle must not be exceeded by more than 500 miles or 14 days.