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Rising cost of living to increase interest in salary sacrifice

By / 8 years ago / Latest News / No Comments

Steve Archer, fleet services director, Inchcape UK, said: 'With take home pay for many employees set to reduce and benefit-in-kind tax rates favouring low emission company cars, employees can potentially save themselves money by sacrificing some of their salary and using it to fund a car with low CO2 emissions.'

While the financial benefits of a company car salary scheme are individual to each employee, Inchcape Fleet Solutions calculates that a basic rate tax-paying 37-year-old living in the Home Counties with a no claims bonus of six years or more could obtain a Volkswagen Polo 1.2 60 S three-door (128g/km CO2) with a P11d value of £9,940 at an estimated net monthly average cost to themselves of £175.47 on a 36-month/30,000-mile contract.

The estimated gross monthly cost to the employee of the Volkswagen Polo is £250.06 – vehicle costs of £194.25, SMR costs of £17.03 and fixed term motor insurance of £38.78 – however, that figure would be reduced by £30.32 a month to £219.74 as a result of their employer passing on monthly National Insurance savings due to the salary reduction.

Additionally, the employee will make monthly tax and National Insurance savings totalling £70.32 as a result of sacrificing some of their salary for a company car but will pay £26.05 per month in Benefit-in-Kind tax on the Polo.

As such, the "IFS Justdrive" salary sacrifice calculations reveal a monthly tax efficiency saving to the employee of £44.27 with the net cost of running the Polo being £175.47 a month (£219.74 – £44.27).

Mr Archer said: 'I would urge businesses to help their employees make every pound stretch as far as possible and give their staff the option of driving a company car through a salary sacrifice scheme.

'Company cars continue to be hugely emotive for employees and a powerful recruitment and retention tool. If staff can take to the wheel of a new car and make financial savings that will enable their household budgets go further then employees will be appreciative.'

Additionally, employers can also make financial savings with 100% first-year capital allowances available on cars emitting 110 g/km or less in addition to National Insurance savings as a consequence of paying a lower salary.

'With rising inflation and tax increases we believe salary sacrifice can play a major part in companies' remuneration strategy in relation to cars,' concluded Mr Archer.

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