Car salary sacrifice: fact or fiction?

20th March 2017

Changes to salary sacrifice schemes announced in the Chancellor’s Autumn Statement unleashed a torrent of myths about employee car benefits. Andrew Don seeks to separate the fact from the fiction

Salary sacrifice car schemes are alive and kicking, despite what anyone might try to tell you.

The schemes, where employees exchange some of their salary for a non-cash benefit-in-kind (BIK), such as a car or a mobile phone, have proved popular with thousands of companies and their staff.

For car schemes, both employer and employee make a tax saving, increasing their attractiveness, because the benefit is taxed less than the salary.

However, Chancellor of the Exchequer Philip Hammond announced in his Autumn Statement on November 23 that most salary sacrifice schemes would be subject to the same tax treatment as cash income from April this year.

The announcement affects various salary sacrifice schemes differently. Pensions, childcare, Cycle to Work and ultra-low emission cars (up to 75g/km) will be exempt under the new rules.

All arrangements in place by April 5, 2017, will be protected for up to a year, but cars get a bigger window and will be protected until April 2021.

Claire Evans, head of fleet consultancy at Zenith, insists salary sacrifice car schemes still demonstrate “excellent value” compared with other market options, although a number of fleets have privately expressed reservations about the perceived complexity created by the changes.

Tusker, a leading salary sacrifice provider, says there has been a great deal of confusion about the facts, and this has led to the perpetuation of myths around what the Government changes mean. Not even the experts all agree.

The commonly-held beliefs about the salary sacrifice changes are listed on the following pages with detailed explanations aimed at cutting through the myths.

The changes spell an end to the reduction in employers’ class 1 NI

Verdict: Fiction
Prices go up for all employees

Verdict: Fiction
Only ultra-low emission vehicles will be available under salary sacrifice schemes

Verdict: Fiction
Employees have to receive cars by April 5 to benefit from tax savings

Verdict: It depends
Salary sacrifice will be abolished in 2021

Verdict: Fiction
Companies are no longer signing up for salary sacrifice schemes

Verdict: Fiction
Salary sacrifice continues to be an alternative to traditional car schemes

Verdict: Undecided
Salary sacrifice schemes can be terminated if an employee leaves

Verdict: Fact
In conclusion

Car salary sacrifice schemes remain an extremely valuable benefit to employees, says benefits advisor John Messore, director at Innovation Professional Services.

“Also, contrary to some published options, there are many cars where cost savings can still be substantial.

“While the largest savings can sometimes be with ULEVs below 75g/km, there are also significant financial savings with higher CO2 cars that have low whole-life costs.”

Read the in-depth article on Fleet News