Director of Fleet Evolution, Andrew Leech, examines the changes to salary sacrifice
Salary sacrifice has long been a stalwart of companies’ benefits portfolio, allowing employees to ‘exchange’ gross salary for pension, bikes and cars. These schemes have helped
to maximise employee’s incomes for years, however it hasn’t escaped many HR managers’ attention how many new schemes had been introduced under the ‘salary sacrifice’ banner: and with everything from wine to white goods, it was only a matter of time before HMRC reviewed this area to ensure that employees were not living the high life at the expense of the Exchequer!
The long-threatened review happened last year with changes announced being enforced from April – but what does this actually mean? For some benefits there have been significant changes, for others the changes have been less noticeable.
The main thing that HMRC did was to introduce a corresponding ‘benefit in kind’ on any salary sacrifice benefit and remove the employers NI saving. For some schemes this can cause a real headache but others – gym membership, health plans and cars to name three – have always had a benefit in kind charge. These schemes have always generated savings more from corporate discounts and lifestyle benefits rather than an actual tax saving, although tax savings can still be significant on cleaner cars – which will actually get even cheaper in the future with proposed further company car tax changes, with such cars protected from any changes still delivering employers an NI saving.
So what does this mean for employees? Well we think salary sacrifice still has a place for a whole raft of benefits, and it will still reduce employees’ financial stress and improve productivity. Although the employer NI saving may be removed for many benefits,
the less tangible benefits of improved retention, recruitment and productivity really stack up. Cars continue to be up to 45% cheaper than retail for the cleanest models, with over 200 on
the market and more coming out each month. More polluting cars have been affected but out of 3,000 models on our scheme only 800 have increased in cost, and then by just £8 per month typically.
From 2020 with proposed company car tax changes the cleanest cars, ULEVs, will be even better value and with products ranging from a Nissan Leaf from £250 per month (no deposit,
everything but electricity included) to a Tesla for £850 per month there is something for every employee’s budget, lifestyle and aspiration.
There have been some losers. The living wage increases are welcome but mean that many entry-level employees have no spare salary to sacrifice for a bike – let alone a car! There are also those shown to do large amounts of business mileage who now have an increased benefit in kind where a none electric/hybrid car is chosen. There are solutions – but when one size doesn’t fit all you do need an expert to channel employees into the correct scheme for them.
Employee car schemes are one of the best ways to reward employees: they are a big item of expense and when they go wrong it impacts both your business and personal life. With the right provider you can ensure all employees can remove the stress and much of the financial cost of motoring, improving wellbeing. Just choose a provider that offers schemes such as employee car ownership and affinity schemes in addition to salary sacrifice as ecos suits those covering business miles and affinity those on living wage.
In addition, cost is key so ensure the scheme allows you to pass on VAT savings where applicable as this type of scheme is much better value for the employee.
And lastly, choose a provider who promotes the scheme fully for you and handles HMRC submission: employee car schemes don’t have to be complicated and any good provider should remove all the complexity for you, at no cost to you.