Salary Sacrifice Q&A with Will Voisey, Managing Director

With the recent Autumn 2024 budget giving a positive vote to electric vehicles, with tax rates for both road tax and benefit-in-kind set to remain low compared to petrol and diesel cars, Salary Sacrifice remains a good choice for many SMEs to reward their teams.  In addition, the rise in employer’s national insurance contributions also increases the savings for employers offering their people the benefits of a salary sacrifice car scheme.

Will Voisey, Managing Director at Synergy Car Leasing, talks through your main questions regarding offering a Salary Sacrifice scheme to your staff.

What is a salary sacrifice car scheme?

A salary sacrifice car scheme allows your employees to “sacrifice” or “exchange” part of their salary for the use of a new electric or plug-in hybrid car.

How does an employee benefit from a salary sacrifice scheme? 

Your employees can save around 30%-60% on the cost of the vehicle. This is due to the savings on tax and national insurance (NI) contributions; the employee no longer pays tax and NI on the portion of their salary that they have exchanged for a salary sacrifice car. This gives the employee a net saving, which in most cases offers significant value.   

How does a business benefit from salary sacrifice?  

Staff retention and attracting the right calibre of new talent to any business remains very competitive, and for many businesses this can be difficult to get right.  Offering a salary sacrifice scheme is a significant staff benefit, which can also save your business money too, so its win-win. 

Salary sacrifice can also support your environmental, social and governance (ESG) strategy by reducing emissions and increasing your sustainability credentials.

Is salary sacrifice suitable for SMEs?

It’s important to consider the reasons for your business to offer a salary sacrifice scheme and whether it meets your objectives and goals.   

Salary Sacrifice works well for many SMEs because there is no direct cost to the business. Risk can be considered and mitigated by building it into your scheme rules to protect the business.  It also works very well for directors’ cars too, so the benefit can be applied to only certain types or levels of roles within your company too.

Are there any eligibility criteria for salary sacrifice?

Yes, there are certain criteria to ensure HMRC compliance.  Firstly, the car must be electric or a plug-in hybrid with less than 75g/km CO2.  It is the employer’s responsibility to ensure that any employee does not go below minimum wage through their salary sacrifice, therefore, if you also offer salary sacrifice pensions for example, you may need to have certain salary criteria to protect your employees and the business from this.  The employee must also have a valid driving licence.  In addition, a business can set its own criteria such as length of service or job level.

Are there any other hidden costs in salary sacrifice cars?

There are no hidden costs, as a good provider will explain any associated costs to be aware of before you commit to running a scheme.

Additional charges to ensure you and your employees are clear about include: end of contract damage charges (if the vehicle is returned damaged, outside of fair wear and tear allowances); excess mileage charges (going over the agreed mileage for the contract); any parking or speeding fines; ending the contract early may incur charges (which can be limited with the use of early termination protection).

The employee is also liable for benefit-in-kind tax on the vehicle, however, this is normally good value on electric and plug-in hybrid cars, especially compared to petrol or diesel cars.

What happens if an employee on a salary sacrifice scheme leaves?

A salary sacrifice car is usually on a business contract hire agreement for 2, 3 or 4 years (depending on your company scheme).  If an employee leaves early and the car is returned, the employer will be liable for any early termination charges.  These can be minimised with the use of early termination protection which will limit the liability of the employer.  Another way to manage this is to add a small administration fee to the monthly salary sacrifice amount for each employee with a car.  This allows the company to build up a “contingency fund” to deal with any unexpected costs associated with the scheme such as early termination. The employer could also offer the vehicle to another member of staff or as a company car, or reclaim any outstanding costs from the employee.  The mitigation of this risk can be built into your individual scheme rules to meet your company’s requirements.

What about the administration associated with salary sacrifice cars?

Synergy offers an easy-to-use online portal, which automatically creates the correct scheme rules for your organisation.  It also provides the documentation for employees which details their change in contract to accommodate their salary sacrifice amount.  We also provide a payroll guide for employees and payroll information to ensure that the correct salary sacrifice amount is taken to meet all regulatory requirements.

What if a salary sacrifice car is in an accident?

A salary sacrifice car would be treated the same as any other car, and would go through the insurance.  The insurance can be provided through the salary sacrifice scheme and normally offers fixed costs for the term of the contract; or, alternatively, the vehicles can be added to the company’s fleet policy and a charge added to the salary sacrifice amount for the employee to cover any increased costs to the company.  As the vehicle is leased by the company, the insurance should be adequate comprehensive insurance in the company’s name.

What is the likely uptake of a salary sacrifice scheme?

Scheme update varies dependent on eligibility rules and the design of the scheme.  Broadly speaking, uptake can be anywhere between 3% and 10% of employees in the first year, with the highest estimated to be 15%.

Synergy Salary Sacrifice offers both electric and plug-in hybrid vehicles to all types of businesses, with access to its easy-to-use online portal. Synergy is a leading leasing broker and supplies all makes and models of cars and vans to businesses and private individuals, as well as offering salary sacrifice schemes to SMEs.

Find out more in our Salary Sacrifice Guide.