Salary Sacrifice for Cars Scheme

[xRIEx]

At that sort of price I can't think of any reason not to.

[Blown2CV]

Is 240 quid a month really cheap for that car?!

[Zigster]

Deva Link said:

Blown2CV said:

i am not sure about these salary sacrifice schemes. Basically it just means you get your car allowance tax free providing you buy a car on the scheme (I know it's more complicated than that) but you pay BIK tax so it is only even vaguely worth it for very small cars. Surely there isn't much in it even then.

BIK is next to nothing on this sort of car for a 20% taxpayer. For a salary sacrifice scheme it's all taken care of in the deal.

HMRC isn't happy about these schemes, mainly because the risk of ownership stays with the employer, but they haven't moved against them as everyone expected. As such, it's almost bonkers not to take advantage of them, and for a young driver in a higher insurance area it would be beyond insane.

BIK can be pretty low for a low emissions car. I wonder if there are alternatives the OP could look at which are similar but even lower emissions (some sort of Fiat Twin Air) so lower BIK.

Why I replied to you is this point about a risk from HMRC. Why would that be? It is just a company car scheme - you give up some of your salary and, in return, get a company car. The risk of ownerships tays with the employer in the same way as an old fashioned company car scheme.

[craigb84]

Blown2CV said:

Is 240 quid a month really cheap for that car?!

When you consider that all he has to do is fuel the thing then I would say yes...it's not bad at all. Insurance alone could be worth £100 a month.

[eggchaser1987]

I took out a company car last year, when I was 23.

I have to say that it was one of the best things I could do at the time. I ended up with a BMW 118d, not the most PH car but not to be sniffed at. All serviceing, insurance, tax etc paid for all I have to do is give it a drink once a week.

I did take a hit on the tax bracket I was in but waht I lose in income is no way near what I would have to pay out in insurance etc.

I say got for it.

[Deva Link]

Zigster said:

The risk of ownerships tays with the employer in the same way as an old fashioned company car scheme.

Yes exactly, but it's paid for by the employee sacrificing some of their salary and therefore paying less tax and NI.

Imagine if you could do that with everthing? Mortgage £500/mth - get your employer to pay it from your gross salary and even for a 20% tax payer with 11% NI you just knocked 31% off the monthly cost. Etc...

[Deva Link]

Blown2CV said:

Is 240 quid a month really cheap for that car?!

Yes, especially considering it includes insurance and there's no risk of ownership in the car. Bust a tyre on a kerb? No worries, you get a new one, free. Etc.

[Zigster]

Deva Link said:

Zigster said:

The risk of ownerships tays with the employer in the same way as an old fashioned company car scheme.

Yes exactly, but it's paid for by the employee sacrificing some of their salary and therefore paying less tax and NI.

Imagine if you could do that with everthing? Mortgage £500/mth - get your employer to pay it from your gross salary and even for a 20% tax payer with 11% NI you just knocked 31% off the monthly cost. Etc...

Sure, but that's just a flexible benefits issue - no reason why HMRC would be concerned. There are lots of other benefits with similar (or better) tax effectiveness through salary sacrifice: pensions (of course), bicycles, childcare vouchers, ... With a salary sacrifice scheme you're choosing to take your salary in the most tax effective way for you and it's all above board, HMRC sanctioned. The employer would probably have some T&Cs which covered them in the event of the employee leaving service before the contract is finished. Mortgages used to be tax efficient (MIRAS) but that got changed in a (early 90s?) budget. But, while MIRAS was in place it was very much as you suggested - interest on a mortgage offset against your tax.

Still not sure why you think HMRC wouldn't like it.

[TwigtheWonderkid]

There is no BIK on a properly set up salary sacrifice scheme. The car is not owned by the employer, but the employee.

If the scheme isn't set up in accordance with the rules, there can be BIK on the cash saving over funding your own car of a similar make, but most schemes are set up correctly.

At you age, the insurance is the big thing. If you like in a big city, a new 1.4 Fiesta could cost you over £2K a year, so then the scheme looks super attractive.

Good luck.

[mrmr96]

TwigtheWonderkid said:

There is no BIK on a properly set up salary sacrifice scheme. The car is not owned by the employer, but the employee.

I don't believe you.

[Deva Link]

Zigster said:

Still not sure why you think HMRC wouldn't like it.

Why would HMRC be keen on a scheme which reduces employees tax and NI payments?

Bikes benefit from being seen as green, childcare vouchers from being family friendly etc. But there's no such halo effect with cars.

[Condi]

Do your own sums and work it out!

For me, even at 20, I doubt it would have been worth it, but it wouldnt take much for the cost of running a car to be above what you would pay in insurance, tax, servicing, etc.

[Zigster]

TwigtheWonderkid said:

There is no BIK on a properly set up salary sacrifice scheme. The car is not owned by the employer, but the employee.

If the scheme isn't set up in accordance with the rules, there can be BIK on the cash saving over funding your own car of a similar make, but most schemes are set up correctly.

At you age, the insurance is the big thing. If you like in a big city, a new 1.4 Fiesta could cost you over £2K a year, so then the scheme looks super attractive.

Good luck.

That's simply not true. Benefits in kind are taxed - the exact tax depends on the benefit provided. A company car (which is what this would be) is taxed based on the CO2 emissions - so, for example, a car emitting 75-99 g/km of CO2 is taxed at 10% of list price (in 2011/12). A very high emissions car can be taxed at up to 35% of list price. Which is why many companies are reintroducing company car schemes as a flex/salary sacrifice benefit. The Government is providing an incentive to run a low emissions car via company car schemes. That's one of the key reasons why my wife is looking at getting a low emissions through the company of which she is the sole director.

So, as an example, a Skoda Citigo (CO2 = 98g/km) costing about £10k would result in additional tax for the employee as if they had been provided with a benefit to the value of £1,000. I understand there is employer's NI on the benefit but not employee's NI so a key tax advantage for the employee is that they can reduce their NI liability and, with a low emissions car, get a tax advantage compared with buying the car out of net income.

[Deva Link]

Zigster] said:

So, as an example, a Skoda Citigo (CO2 = 98g/km) costing about £10k would result in additional tax for the employee as if they had been provided with a benefit to the value of £1,000.

..and in case that's not clear to people, the tax payable for a 20% tax payer is £200. £16.66 per month.

The mainteneance and isurance element is tax free.

Not sure what the OP's salary would drop by, but say it's £2K. That's a loss to HMRC of £400 income tax and £120 in employees NI payments.

[Zigster]

Deva Link said:

Zigster said:

Still not sure why you think HMRC wouldn't like it.

Why would HMRC be keen on a scheme which reduces employees tax and NI payments?

Bikes benefit from being seen as green, childcare vouchers from being family friendly etc. But there's no such halo effect with cars.

Because the Government (via HMRC) uses tax incentives to encourage certain behaviour. Lots of employee benefits have tax/NI advantages to a greater or lesser degree - the key point of a flexible benefits scheme is to take advantage of these incentives. The Government provides tax advantages to running low emissions vehicles to encourage individuals to choose such vehicles over ones which produce higher emissions - i.e. low emissions cars are seen as being green. Company cars aren't tax free (like bikes bought using the Cycle To Work scheme) but they can be tax efficient if you choose the right car (the lower the emissions the better) because that's what the Government intends. And the car manufacturers target those markets - e.g. the VW Bluemotion range, the BMW 320d/520d and so on.

So it's misleading to say that the Government doesn't like it - they are well aware of this tax break and are encouraging it. (I promise I'm not picking a fight over this but I think it's worth clarifying the misunderstanding.)

[okie592]

craigb84 said:

When you consider that all he has to do is fuel the thing then I would say yes...it's not bad at all. Insurance alone could be worth £100 a month.

yes. i looked at pcp on a fiesta and it was at least £250 a month, plus insurance of about £150, its a no brainer.

find out if you leave, or get made redundant, is it just hand the car back. ide go for it in a heart beat, the fiesta is a really good drive

[snowdude2910]

If it's insured taxed etc and the 240ish was it? is taken before tax it's effectively costing you £160 after tax and your no claims bonus is free to insure a toy :-D

[Deva Link]

Zigster said:

So it's misleading to say that the Government doesn't like it - they are well aware of this tax break and are encouraging it. (I promise I'm not picking a fight over this but I think it's worth clarifying the misunderstanding.)

I've searched for the link but can't find it now, but HMRC studied salary sacrifice schemes specifically in relation to cars and said they had various reservations about them and would keep the situation under review. That nothing has happened is, I can only assume down to the current Government.

HMRC recently won a signficant European court case over the VAT treatment of items supplied under salary sacrifice schemes.

[Cyder]

mrmr96 said:

TwigtheWonderkid said:

There is no BIK on a properly set up salary sacrifice scheme. The car is not owned by the employer, but the employee.

I don't believe you.

This ^ I've got 2 cars on a similar scheme and BIK definitely has an effect.

[PurpleMoonlight]

TwigtheWonderkid said:

There is no BIK on a properly set up salary sacrifice scheme. The car is not owned by the employer, but the employee.

If the scheme isn't set up in accordance with the rules, there can be BIK on the cash saving over funding your own car of a similar make, but most schemes are set up correctly.

Perhaps you could explain the rules so as not to be deemed tax evasion?