What is a Salary Sacrifice car scheme?

What is Salary Sacrifice?

Salary sacrifice is the term used when an employee gives up the right to receive part of their cash pay due under his or her contract of employment. Usually the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit. The ‘sacrifice’ is achieved by varying the employee’s terms and conditions of employment relating to pay. Salary sacrifice is a matter of employment law, not tax law. Where an employee agrees to a salary sacrifice in return for a non-cash benefit, they give up their contractual right to future cash remuneration.

 

What does Salary Sacrifice scheme mean for me?

This scheme enables employees to be provided with a new car of their choice, fully maintained and insured by Hitachi Captial. Employees will pay for the car under salary sacrifice arrangements through a monthly gross salary reduction (where applicable) which means a saving in tax and NI for any employee using the scheme.

 

Is this scheme only for employees who undertake business mileage as part of their job?

No. This is a car for you and your family to use. Whether you do any miles or not as part of your job you can still apply for a salary sacrifice car.

 

Do I qualify for the Salary Sacrifice scheme?

All employees are eligible to enter into the scheme provided they satisfy the following criteria in regard to their contract and salary. Employees:

 

  • Must be in a substantive post with a regular pattern of work (and will remain so over the period of the contract) 

  • Must not reduce their taxable pay to a rate below the prescribed National Minimum Wage; once joining the scheme, the new rate of taxable pay must equate to more than the hourly legal minimum wage. Contact your HR department for more information. 
Do employees have to be in full time employment to be eligible for Salary Sacrifice? 
No, however employees will be unable to participate in the scheme if this will result in their salary falling below 
the National Minimum Wage.

 

What is HMRC’s view on Salary Sacrifice for cars?

HMRC view this arrangement as an employment law rather than a tax law matter, as you are free to agree a change in your remuneration with your employer. Entering into this arrangement is in essence the same as agreeing to a reduction in your salary. To fall within the tax break HMRC will want to establish that a change in salary is “permanent” meaning that any change must be for a minimum 12 month period. In addition you must also agree to sacrifice your salary before you take delivery of your car. You will be liable for Benefit In Kind Tax (BIK) as the scheme operates as a company car scheme, however choosing lower CO2 vehicles will normally outweigh this tax and make the tax savings under the scheme particularly beneficial. When reviewing the vehicles available to you through our online system you will easily be able to identify the vehicles with the most effective tax savings and lowest BIK.

 

What am I paying for if I take a Salary Sacrifice vehicle?

Most Salary Sacrifice Schemes are all-inclusive motoring offering including:

 

  • Finance of the vehicle itself 

  • Maintenance of the vehicle including all servicing, batteries and exhausts under normal wear and tear conditions. Exclusions include glass (other than light bulbs) and driver damage 

  • No quibble tyre replacement
  • Fully comprehensive insurance including all business travel for partner/spouse at the same address 

  • Annual Road Fund Licence - This will be organised and sent to you at each renewal period 

  • UK roadside assistance

 

What benefit do employees receive through Salary Sacrifice?


Large employers are able to receive excellent discounts from car manufacturers when either purchasing or leasing vehicles. This scheme enables employees to take advantage of these discounts, together with savings on tax and NI to bring you a really good deal. The choice of vehicle is yours (subject to company policy), maintenance and insurance are included and the price is fixed dependent upon the number of miles you wish to do. 


 

Which vehicles attract the best savings?

Due to the current Benefit-in-Kind legislation the most cost effective vehicles on the scheme are those that have a CO2 rating of less than 75g/km. You can also take advantage of certain manufacturer incentives as shown on the offers section of the home page. 


 

What is a Benefit In Kind (BIK)?


HMRC determine that organisations can make ‘in kind’ payments to employees which are not taxed at source but are considered a payment for tax purposes. Company cars are a prime example for this. This salary sacrifice scheme is considered a company car for tax purposes even though you are paying for it. It therefore attracts a percentage of tax determined on the cost of the vehicle (P11d price). The tax charge is based on the CO2 emissions of the vehicle and changes year on year dependent on government legislation.

 

For more information on BIK please refer to: https://www.gov.uk/tax-company-benefits/tax-on-company-cars 


 

Will I have to pay any Benefit in Kind (BIK)/Company Car Tax?


Because the car is a benefit provided by your employer, it does attract a BIK Tax charge based on the CO2 emissions of the vehicle. The lower the emissions, the lower the charge. So depending on your choice, you’ll still make significant savings.

 

I’ve got an existing car, what options have I got?

There are a number of choices:

 

  • Keep the car and opt for a second vehicle via Car Choices
  • 
Sell the vehicle privately yourself and enter the scheme 

  • Enter the scheme when your existing car is due for replacement 


 

Who is responsible for arranging servicing for the vehicle?


Whilst you do not pay separately for servicing as it is covered in the scheme, 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 to avoid incurring any additional charges. It is likely that for insurance services to remain valid the first and subsequent service of the vehicle must not be exceeded by more than 1000 miles or 14 days.

 

What happens if I do more than the contracted mileage?


When you choose your vehicle you have the opportunity to choose the annual mileage. If you return your vehicle with more than the contracted mileage you may be liable for an excess mileage charge to cover the expense of the additional depreciation and servicing costs that will have been incurred because of the additional mileage. Call customer services to inquire about the cost.

 

Do I have to provide proof of my no claims bonus for the motor insurance policy?


No, the policy is NET rated. This means that everybody who meets our criteria is given the discount equivalent to maximum bonus. If you already have maximum bonus then you can keep it to use on another car. When you come to the end of your selected term we will be happy to confirm your no claims bonus for the period you have been with us. You are free to add that to your existing bonus or keep it separate to use on another car. 



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