Please help me understand salary sacrifice vs company car
Discussion
Hello everyone
I hope you can help and I hope I have put this in the correct forum.
Can someone please help explain the differences between a salary sacrifice scheme vs a company car?
At the moment, I am on cash for car allowance and get a measly £400 per month (pre-tax). I am in the 20% tax bracket.
Our company uses Arval and for a salary sacrifice scheme, there is a iX1 up at around £520 per month (and my cash for car allowance would of course stop).
I also saw that Arval offer a company car scheme where the same car is around £25 per month (and my cash for car allowance would of course stop).
What I am struggling to understand is what should I be looking for between the two schemes to understand which one would be better for me financially.
Thank you kindly.
I hope you can help and I hope I have put this in the correct forum.
Can someone please help explain the differences between a salary sacrifice scheme vs a company car?
At the moment, I am on cash for car allowance and get a measly £400 per month (pre-tax). I am in the 20% tax bracket.
Our company uses Arval and for a salary sacrifice scheme, there is a iX1 up at around £520 per month (and my cash for car allowance would of course stop).
I also saw that Arval offer a company car scheme where the same car is around £25 per month (and my cash for car allowance would of course stop).
What I am struggling to understand is what should I be looking for between the two schemes to understand which one would be better for me financially.
Thank you kindly.
You're going to have to do your sums to work out what is best for you. It will depend on which car and your usage.
Salary sacrifice.
The car is yours.
You will pay a sum out of your wages pre-tax.
You will have to insure the car yourself
You will have to tax the car yourself
You will have to pay to maintain the car yourself
You will have to pay for "fuel".
You will still have to pay BIK.
If used for work you will get up to 45p/mile (or tax relief on the same if they don't pay that much).
Company car
The car is not yours.
You will not have to insure the car.
You will not have to tax the car.
You will not have to pay to maintain the car.
You will pay BIK.
If you have a fuel card then you will have to pay for "fuel" on your personal usage, typically at the HMRC rates.
I think that's broadly it.
Salary sacrifice.
The car is yours.
You will pay a sum out of your wages pre-tax.
You will have to insure the car yourself
You will have to tax the car yourself
You will have to pay to maintain the car yourself
You will have to pay for "fuel".
You will still have to pay BIK.
If used for work you will get up to 45p/mile (or tax relief on the same if they don't pay that much).
Company car
The car is not yours.
You will not have to insure the car.
You will not have to tax the car.
You will not have to pay to maintain the car.
You will pay BIK.
If you have a fuel card then you will have to pay for "fuel" on your personal usage, typically at the HMRC rates.
I think that's broadly it.
Either way you're leasing a car, the difference is that salary sacrifice is a contract that you enter and your employer deducts the monthly charge from your pre-tax salary, effectively reducing that £520/month by your 20%tax + 12% NI bands. This means the net cost of the car is going to be closer to £353.60/month which might sound great but you're also no longer receiving the £400/month payment (Which was also being taxed at 20% + 12%NI). So add back that 'missing' income and the actual cost per month for just the leasing of the car is £625.60/month.
Depending on the paperwork you sign, you would also be liable for the full lease cost of the car if you left your employer during the term of the lease.
A company car is a much simpler process, though not offered as frequently nowadays as it was in the past. The financial agreement is between your employer and the car leasing company. Your employer is responsible for servicing, insurance etc. If you leave your employment during the term of the lease it's normally the employer's problem (no clawback deal in most contracts I've seen) and normally they've paid an insurance value to allow them to terminate the lease early in these instances, though I have worked places before where that wasn't the case and the cars were normally then used as pool cars.
Given that your income level has you still in the 20% tax bracket, I think that iX1 is quickly going to look very expensive at £7.5k/yr before insurance and general maintenance costs.
Depending on the paperwork you sign, you would also be liable for the full lease cost of the car if you left your employer during the term of the lease.
A company car is a much simpler process, though not offered as frequently nowadays as it was in the past. The financial agreement is between your employer and the car leasing company. Your employer is responsible for servicing, insurance etc. If you leave your employment during the term of the lease it's normally the employer's problem (no clawback deal in most contracts I've seen) and normally they've paid an insurance value to allow them to terminate the lease early in these instances, though I have worked places before where that wasn't the case and the cars were normally then used as pool cars.
Given that your income level has you still in the 20% tax bracket, I think that iX1 is quickly going to look very expensive at £7.5k/yr before insurance and general maintenance costs.
After 10 years of company cars, I’ll be moving back to privately owned in Jan.
For what I pay in taxes, is not longer worth it.
My mileage has dropped below 18k PA and I only get 11p a mile and can’t claim extra from HMRC. With a privately owned car, I’ll be getting 33p topped up to 45 p per mile with the HMRC private claim.
With £400 pre tax and the extra money per mile, I can easily run a car and save some cash on the side.
The plus side of company cars is that almost everything is paid for and should something happen to the car, it just gets fixed FOC to you.
Even with this, in my opinion it is only worth it if you do big miles or if you really want a brand new car but can’t afford it yourself
For what I pay in taxes, is not longer worth it.
My mileage has dropped below 18k PA and I only get 11p a mile and can’t claim extra from HMRC. With a privately owned car, I’ll be getting 33p topped up to 45 p per mile with the HMRC private claim.
With £400 pre tax and the extra money per mile, I can easily run a car and save some cash on the side.
The plus side of company cars is that almost everything is paid for and should something happen to the car, it just gets fixed FOC to you.
Even with this, in my opinion it is only worth it if you do big miles or if you really want a brand new car but can’t afford it yourself
Fastdruid said:
You're going to have to do your sums to work out what is best for you. It will depend on which car and your usage.
Salary sacrifice.
The car is yours.
You will pay a sum out of your wages pre-tax.
You will have to insure the car yourself
You will have to tax the car yourself
You will have to pay to maintain the car yourself
You will have to pay for "fuel".
You will still have to pay BIK.
If used for work you will get up to 45p/mile (or tax relief on the same if they don't pay that much).
Company car
The car is not yours.
You will not have to insure the car.
You will not have to tax the car.
You will not have to pay to maintain the car.
You will pay BIK.
If you have a fuel card then you will have to pay for "fuel" on your personal usage, typically at the HMRC rates.
I think that's broadly it.
Think you need to read up on salary sacrifice cars - most of what you’ve put is wrong. They’re much more similar to company cars. Salary sacrifice.
The car is yours.
You will pay a sum out of your wages pre-tax.
You will have to insure the car yourself
You will have to tax the car yourself
You will have to pay to maintain the car yourself
You will have to pay for "fuel".
You will still have to pay BIK.
If used for work you will get up to 45p/mile (or tax relief on the same if they don't pay that much).
Company car
The car is not yours.
You will not have to insure the car.
You will not have to tax the car.
You will not have to pay to maintain the car.
You will pay BIK.
If you have a fuel card then you will have to pay for "fuel" on your personal usage, typically at the HMRC rates.
I think that's broadly it.
What you’ve written is what happens when you get a car allowance, which is where the OP is now.
Indeed. My employers' salary sacrifice car scheme is 'all inclusive' (except fuel) with no mileage limits, so is hugely expensive compared to a normal lease unless you are doing plenty of miles each year and/or qualify for a car allowance based on work mileage or grade.
The OP's claim they would lose their car allowance if they actually get a car seems odd (unless the allowances are priced in).
The OP's claim they would lose their car allowance if they actually get a car seems odd (unless the allowances are priced in).
Whenever i’ve seen them the monthly price always seems fairly inflated with the main advantage of tax savings passed onto the provider/employer…
The biggest kicker is reduction in pension contributions, which yes while not large multiply over time. Employers also love this as this makes their pension contribution smaller as it’s on a smaller gross salary value… hence why the big push particularly in the NHS.
It’d be worth it if they were cheaper than retail rates, but generally they aren’t from what i’ve seen personally and heard via these forums and others.
So its all in the maths really.
The biggest kicker is reduction in pension contributions, which yes while not large multiply over time. Employers also love this as this makes their pension contribution smaller as it’s on a smaller gross salary value… hence why the big push particularly in the NHS.
It’d be worth it if they were cheaper than retail rates, but generally they aren’t from what i’ve seen personally and heard via these forums and others.
So its all in the maths really.
Our company bases pension contributions on your pre-sacrifice salary. amongst my friends who work in other places, this seems to be the norm with the NHS/public sector employers being out of step by using the post sacrifice salary to calculate pension contributions…
(My place passes on the NI savings as well, but this is a less common)
(My place passes on the NI savings as well, but this is a less common)
Sheepshanks said:
Think you need to read up on salary sacrifice cars - most of what you’ve put is wrong. They’re much more similar to company cars.
The one I had through Alphabet back in 2010 was basically a company car that I paid for (as opposed to a company car as a perk that the company paid for) so it was fully maintained, taxed and insured on the company scheme and I had to hand it back when I left the company. I believe that because the salary sacrifice is a separate benefit to the company car benefit, you would continue to get the car allowance as you are opting not to take a company car.Chris
dema said:
After 10 years of company cars, I’ll be moving back to privately owned in Jan.
For what I pay in taxes, is not longer worth it.
My mileage has dropped below 18k PA and I only get 11p a mile and can’t claim extra from HMRC. With a privately owned car, I’ll be getting 33p topped up to 45 p per mile with the HMRC private claim.
Not quite accurate, you'll get the difference in tax back, eg 20% or 40% of 12p. Otherwise no employer would pay mileage and just tell you to claim back from hmrcFor what I pay in taxes, is not longer worth it.
My mileage has dropped below 18k PA and I only get 11p a mile and can’t claim extra from HMRC. With a privately owned car, I’ll be getting 33p topped up to 45 p per mile with the HMRC private claim.
Wondered if someone far better at tax can help with this. I’ve read through the posts but can’t get my head round what an EV supplier said to me recently.
They mentioned that an EV car could go from around £600/month to £450/month if I could effectively reduce my salary to a bracket between £110K and £130K via pension contributions.
They were keen to emphasise that they weren’t a financial advisor, and neither am I, so hoped someone might be able to make sense of that statement on here . . .
Many thanks in advance.
They mentioned that an EV car could go from around £600/month to £450/month if I could effectively reduce my salary to a bracket between £110K and £130K via pension contributions.
They were keen to emphasise that they weren’t a financial advisor, and neither am I, so hoped someone might be able to make sense of that statement on here . . .
Many thanks in advance.
5150 said:
Wondered if someone far better at tax can help with this. I ve read through the posts but can t get my head round what an EV supplier said to me recently.
They mentioned that an EV car could go from around £600/month to £450/month if I could effectively reduce my salary to a bracket between £110K and £130K via pension contributions.
They were keen to emphasise that they weren t a financial advisor, and neither am I, so hoped someone might be able to make sense of that statement on here . . .
Many thanks in advance.
My guess is that they are referring to the fact that because your personal allowance is reduced on a £1 for £2 earned over £100k your effective tax rate between £100k and £125k is 60%. Maybe they are using £110k to £130k not £100k to £125k because they are assuming a level of pension contributions as well? The effect of that is a salary sacrifice car with a gross cost of £1,000 a month costs a 40% tax payer around £600 (slightly less because of NI) a month. For someone with a marginal rate of 60% the net cost of the same car is around £400 a month. They mentioned that an EV car could go from around £600/month to £450/month if I could effectively reduce my salary to a bracket between £110K and £130K via pension contributions.
They were keen to emphasise that they weren t a financial advisor, and neither am I, so hoped someone might be able to make sense of that statement on here . . .
Many thanks in advance.
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