Salary Sacrifice Schemes?

glenimp617 · 12 Feb 2020 at 08:34

Does anyone know anything about salary sacrifice schemes?

Let's say (for ease of maths) someone is earning £50k a year and gets an annual bonus of £4k. The tax mans sees this is as a £54k earner so anything over £46k is taxed at 40% plus they also get hit with a 40% child benefit tax bill at the end of the year.

Buying a car through this scheme, say £569 a month (I assume) lowers the eaners overall yearly earnings to £47,172 meaning no tax bill, and a better bonus plus earnings? Plus, the actual difference to your take home pay is £387 which is very nice.

or have I got this all completely wrong? I've run the numbers through an online calculator and it's coming back with almost the exact same figure I'm currently paying now on my own car (financed).

If I haven't, and I have a Tesla in my sights (taking into account fuel savings, and nothing to pay for insurance, servicing, tax, breakdown cover) what are the pitfalls?

also, any ideas on the new government 0% cO2 WLTP thingy? it seems hybrids are cheaper than pure electric which seems wrong?

Thanks!!

Drumroll · 12 Feb 2020 at 08:50

I believe the difference is you'll use that part of your salary to pay for something, before tax is charged over it, but I believe the tax band would still be over the whole salary, regardless of discounts.

glenimp617 · 12 Feb 2020 at 09:03

MrPotato said:
I believe the difference is you'll use that part of your salary to pay for something, before tax is charged over it, but I believe the tax band would still be over the whole salary, regardless of discounts.

I think ur right, was being a bit hopeful but I don't think BIK does anything to income tax does it

[TW]Fox · 12 Feb 2020 at 09:04

The catch is usually that the income tax you save is replaced by BIK on the car. But of course with a Tesla this becomes very appealing...

Kenai · 12 Feb 2020 at 09:05

The rules changed in 2017 for salary sacrifice car schemes and I don't think they work the same as other salary sacrifice since then, with significantly less tax benefit.

I think the rule change means you effectively now pay income tax on the sacrificed salary or the equivalent car value, whichever is greater.

Edit - looks like ULEVs are exempt from the 'pay income or BIK tax, whichever is higher' rule, so for a Tesla it's probably an option worth looking at still.

JamesRJ · 12 Feb 2020 at 09:05

Its a salary sacrifice so your whole salary will be lower.

I was also interested in this idea

JamesRJ · 12 Feb 2020 at 09:07

BIK changes in April

glenimp617 · 12 Feb 2020 at 09:11

JamesRJ said:
Its a salary sacrifice so your whole salary will be lower.

I was also interested in this idea

If that's true, the tesla becomes a very good idea

doogs · 12 Feb 2020 at 09:22

I've been looking into salary sacrifice through my work for an EV. As others have pointed out it doesn't work for petrol/diesel cars as the benefit in kind tax outweighs the tax and NI savings. However, from April the BIK tax on an EV is 0% and, I believe, rises to 1% in a year's time and 2% the following year. The issue might be if the salary sacrifice takes you below the 40% tax threshold - the savings in tax and NI wont be as good.

For me getting an EV through my work on salary sacrifice is extermely attractive - I cant get a PCH any cheaper for the same car. Plus as you've pointed out tyres, servicing, insurance, maintenance are all included. Literally the only outlay after the monthly salary sacrifice is charging the car.

For me a Tesla model 3 worked out a reduction in take home pay of c. £390 (that was 3 year lease @ 12,000 miles per year).
A Nissan Leaf Tekna was c. £256 on the same terms.

glenimp617 · 12 Feb 2020 at 09:28

doogs said:
I've been looking into salary sacrifice through my work for an EV. As others have pointed out it doesn't work for petrol/diesel cars as the benefit in kind tax outweighs the tax and NI savings. However, from April the BIK tax on an EV is 0% and, I believe, rises to 1% in a year's time and 2% the following year. The issue might be if the salary sacrifice takes you below the 40% tax threshold - the savings in tax and NI wont be as good.

For me getting an EV through my work on salary sacrifice is extermely attractive - I cant get a PCH any cheaper for the same car. Plus as you've pointed out tyres, servicing, insurance, maintenance are all included. Literally the only outlay after the monthly salary sacrifice is charging the car.

For me a Tesla model 3 worked out a reduction in take home pay of c. £390 (that was 3 year lease @ 12,000 miles per year).
A Nissan Leaf Tekna was c. £256 on the same terms.

No it doesn't take me under 40% but it does take me under £50k so I also get the savings from the child benefit which is £660 a year. Every little helps.

Tesla works out at £389 a month for 4yr 7,500 miles or £399 for 3yr 7,500 miles

doogs · 12 Feb 2020 at 09:31

It does seem like a no brainer given the tax savings for higher earners.

Russinating · 12 Feb 2020 at 09:37

I'm not an accountant (so VERY happy to be told wrong) but I've got a Tesla due to be picked up in the next couple of weeks, though I'm a business owner so whilst I've not looked at salary sacrifice that much I did initially as a way to keep things even between myself and my business partner.

First things up salary sacrifice is a bit of generic term for any pay-back agreement, formal or otherwise. Cyclescheme is a salary sacrifice scheme. So is paying for something in installments you broke or damaged at work, for example.

As far as I'm aware, technically your salary remains the same on payroll. There's a benefit here if you're looking to mortgage or remortgage or doing anything else financial that's salary-based. Whatever you're paying for then comes off as a pre-tax and NI deduction - at the same time as pension and student loan contributions - reducing your taxes and net pay.

The BIK is planned to become 0% in April 2020, 1% in 2021 and 2% in 2022. For the Tesla Model 3 SR+ that makes those BIK payments £0 then £86 (£172 for HR) then £172 (£344 for HR).

If you're a business owner, or the owner of the business you work for, takes the 100% FYA incentive into account as well then you can offset £7,503 (Tesla Model 3 SR+) against corporation tax in the first year if you purchase (cash or PCP). You can't claim VAT back on purchase or PCP but you can claim 50% back on leases.

Over 48 months a PCP with Tesla (Black Horse) costs £28,211 including a £10,000 deposit, balloon payment of £15,741. A lease (that I was quoted from Octopus EV) costs £25,327 inc VAT, 8,000 miles pa. You'd be able to claim £2,110 back in VAT.

I'm opting for PCP if it makes any difference. I value the corporation tax offset more than the VAT (and it is worth more) plus ownership. Total spend (plus BIK, insurance, etc which is the same regardless) after 48 months for PCP (less corporation tax) or lease (less VAT) is £20,708 and £23,216 respectively if I do decide to give it back.

If I do decide to keep it then total cost will be £43,952. Cash purchase price is £39,490 at the moment with the OLEV grant.

Worth remembering the BIK is charged base on the list price, not taking into account the OTR price via any grants etc, so £42,000 for the SR+.

If it's a no brainer for employees, then it's an absolute no brainer for business owners.

glenimp617 · 12 Feb 2020 at 09:58

It seems salary sacrifice does indeed lower your overall salary where child benefits are concerned

https://citywire.co.uk/funds-inside...ont-need-to-miss-out-on-child-benefit/a682507

This is all becoming very appealing

I think I can save £1,100 a year by having a new car :confused:

adam cool dude · 12 Feb 2020 at 10:17

Our company also offers extra holidays a year as a form of salary sacrifice or you could always increase pension contributions to bring it down especially the way retirement age is going now.

glenimp617 · 12 Feb 2020 at 10:29

adam cool dude said:
Our company also offers extra holidays a year as a form of salary sacrifice or you could always increase pension contributions to bring it down especially the way retirement age is going now.

Yes, I'm taking all options into account. The fact the car also has extra savings (fuel, servicing, tax, insurance etc etc) it's looking like a good option.

Worth pointing out to others though.

bimbleuk · 12 Feb 2020 at 11:09

Don't forget to add a home charger at £300-400 and the Luxury tax on the car of 5 x £310 for a Model 3 if not factored in.

I'm in the process of switching to the Octopus Go tariff (just 1 example) which will require a SMETS2 meter to be installed but once done I should be able to charge between 00:30am - 04:30am for 5p per kwh or ~100 miles of range or £1.50! Plus a bit for the standing charge too of course.

No tax benefit for me but I have an SR+ with the Tesla, Black Horse PCP scheme.

glenimp617 · 12 Feb 2020 at 11:16

bimbleuk said:
Don't forget to add a home charger at £300-400 and the Luxury tax on the car of 5 x £310 for a Model 3 if not factored in.

I'm in the process of switching to the Octopus Go tariff (just 1 example) which will require a SMETS2 meter to be installed but once done I should be able to charge between 00:30am - 04:30am for 5p per kwh or ~100 miles of range or £1.50! Plus a bit for the standing charge too of course.

No tax benefit for me but I have an SR+ with the Tesla, Black Horse PCP scheme.

Jeez

Fuel savings are going to be huge. I'm with SO Energy so need to check their prices.

@bimbleuk did you get the smart meter from Octopus?

Deleted member 77746 · 12 Feb 2020 at 11:22

I would never get a Salary Sacrifice Scheme on anything. What happens if you leave the company?

Do you give the goods back?
Do they ask for the full amount in full?
Do you keep the said device and not pay until you are back in work?

What happens in this instance?

glenimp617 · 12 Feb 2020 at 11:33

mrbell1984 said:
I would never get a Salary Sacrifice Scheme on anything. What happens if you leave the company?

Do you give the goods back?
Do they ask for the full amount in full?
Do you keep the said device and not pay until you are back in work?

What happens in this instance?

I believe if you leave the company after six months owning the car you simply hand it back. Early termination cover is included within the price.

If you simply decide you don't want the car, a fee is charged.

Deleted member 77746 · 12 Feb 2020 at 11:34

TheOracle said:
I believe if you leave the company after six months owning the car you simply hand it back. Early termination cover is included within the price.

If you simply decide you don't want the car, a fee is charged.

So you would be really just renting it then if you ever leave the company. Not sure I like that.