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Company Car Salary Sacrifice

ProssPross Posts: 23,923
edited October 2013 in The cake stop
Has anyone got a company car through salary sacrifice? I currently have a company car but they seem to be becoming less common in my industry and if I were in a position where I was looking to change jobs (which, for the benefit of anyone who knows me through work I'm not) most places are offering an allowance of about £3,500. Considering I currently get a car worth around £22k that gets replaced every 4 years and I don't have to pay any costs other than fuel the allowances available seem pretty low, especially by time the tax man has taken his cut. I would gain by saving on the tax from the BiK of the company car and if I do a lot of business mileage I would gain by being paid 45p per mile rather than my current 15p.

However, to get back to the point, one company I know of offers a salary sacrifice for a company car so effectively the car allowance gets taken back off you at source to be more tax efficient and you lease a car with it via the company. It's limited to cars under 160g/km CO2 emissions as it is supposedly a Government initiative to encourage more eco friendly cars. Does anyone on here have experience of such a scheme and, if so, would you recommend it? What are the main pros and cons?

Posts

  • arran77arran77 Posts: 9,260
    At my work we can have various benefits provided to us through a salary sacrifice, things like child care vouchers for example, I used it in the past and it seems to work well as you obviously receive the benefit (whatever it may be) and you also pay less in tax.

    Don't have experience of it for company cars as, at the moment at least, we still get company cars provided to us but in principle I recommend salary sacrifice schemes.
    "Arran, you are like the Tony Benn of smut. You have never diluted your depravity and always stand by your beliefs. You have my respect sir and your wife my pity" :lol:

    seanoconn
  • KajjalKajjal Posts: 3,404
    Not quite the same but I get paid a car allowance which is taxed as income normally. I then claim back business mileage at 45p a mile for the first 10,0000 miles and 25p for every mile after that in my yearly tax return. Taking into account all running costs this roughly breaks even after the tax return. Also unlike a lease hire car I own the car so gain more value that way.
  • estampidaestampida Posts: 1,008
    It depends who you work for

    my firm gives a choice, either the car or take the cash and get your own car (the list to choose from is pretty poor), private bought has a bigger set of variables, and as long as it not a zonda or summit stupid they pay...... (they seems pretty cash heavy so its a little like wonderland)

    hence the mini clubman dooper I have right now, maybe a 1 series m tech next.... will I spin a bottle??
  • dai_t75dai_t75 Posts: 189
    I haven't been involved in any schemes myself, but have a couple of questions:

    So with the salary sacrifice you essentially pay £3,500 of your salary over as rental of the car - would this be another BIK or would it be at market rate? If it wasn't market rate I can see it being viewed as a benefit.

    When you talk about being paid 45p a mile do you mean the employer actually paying you that, or the statutory amount you can claim tax back on?
  • Use your bike and receive 20p per mile tax allowance :D
  • arran77arran77 Posts: 9,260
    dai_t75 wrote:
    I haven't been involved in any schemes myself, but have a couple of questions:

    So with the salary sacrifice you essentially pay £3,500 of your salary over as rental of the car - would this be another BIK or would it be at market rate? If it wasn't market rate I can see it being viewed as a benefit.

    When you talk about being paid 45p a mile do you mean the employer actually paying you that, or the statutory amount you can claim tax back on?

    Salary sacrifice means that that for arguments sake you get a £10,000 voucher for a car, the £10,000 gets given to you to go and buy a car with, the £10,000 gets taken out of you salary before you get taxed so your taxable income is reduced therefore resulting in you paying less tax.
    "Arran, you are like the Tony Benn of smut. You have never diluted your depravity and always stand by your beliefs. You have my respect sir and your wife my pity" :lol:

    seanoconn
  • dai_t75dai_t75 Posts: 189
    arran77 wrote:
    dai_t75 wrote:
    I haven't been involved in any schemes myself, but have a couple of questions:

    So with the salary sacrifice you essentially pay £3,500 of your salary over as rental of the car - would this be another BIK or would it be at market rate? If it wasn't market rate I can see it being viewed as a benefit.

    When you talk about being paid 45p a mile do you mean the employer actually paying you that, or the statutory amount you can claim tax back on?

    Salary sacrifice means that that for arguments sake you get a £10,000 voucher for a car, the £10,000 gets given to you to go and buy a car with, the £10,000 gets taken out of you salary before you get taxed so your taxable income is reduced therefore resulting in you paying less tax.

    Yes, I understand the bit about reducing your gross before you get taxed. However, a figure of £3,500 has been mentioned and I can't see you getting much car for that unless the scheme was intended for second hand cars (I assumed they would be new). Also 'rent' has been mentioned which is what I am curious about.
  • dai_t75dai_t75 Posts: 189
    Use your bike and receive 20p per mile tax allowance :D

    You would need a hell of a lot of business miles to get some money from that! Wish I could cycle to work though :(
  • KajjalKajjal Posts: 3,404
    dai_t75 wrote:
    arran77 wrote:
    dai_t75 wrote:
    I haven't been involved in any schemes myself, but have a couple of questions:

    So with the salary sacrifice you essentially pay £3,500 of your salary over as rental of the car - would this be another BIK or would it be at market rate? If it wasn't market rate I can see it being viewed as a benefit.

    When you talk about being paid 45p a mile do you mean the employer actually paying you that, or the statutory amount you can claim tax back on?

    Salary sacrifice means that that for arguments sake you get a £10,000 voucher for a car, the £10,000 gets given to you to go and buy a car with, the £10,000 gets taken out of you salary before you get taxed so your taxable income is reduced therefore resulting in you paying less tax.

    Yes, I understand the bit about reducing your gross before you get taxed. However, a figure of £3,500 has been mentioned and I can't see you getting much car for that unless the scheme was intended for second hand cars (I assumed they would be new). Also 'rent' has been mentioned which is what I am curious about.

    I buy low mileage three year old cars with a full warranty and do over 20,000 miles in total per year. This means they are below half the original price but it does vary on make /model. After three years I then get another , part of the price of the replacement car is covered by the old car it is replacing.
  • Salary sacrifice car schemes generally work in a similar way to a company car scheme - the car is contract hired from a leasing company and provided to you as a benefit and you pay Benefit in Kind tax for it. If you are not eligible through a traditional company car scheme to receive a vehicle that way, then salary sacrifice makes sense - your company contract hires the car for you in return for reducing your salary by the amount this costs, so this value is effectively paid pre-tax so you save either 20% tax + 12% NI or 40% tax plus 2% NI on the monthly amount. As stated, you then pay BiK tax for having the car, but this should be significantly less (it might not be on a Porsche 911, but on most 'normal' cars it will be) than you would have paid on the now sacrificed salary, and the lower the CO2 emissions of the car you choose, the more you save. Additionally, the leasing company probably buys the car for a lower price than you could and your company will almost certainly get a better rate on the finance than you could.

    The confusion arises where you are 'opted out' of a company car scheme and receive a car allowance instead - to all intents and purposes, the 'car allowance' is just additional salary. The advantage to taking a car on salary sacrifice in these circumstances is likely to be more limited in financial terms versus taking the company car, however you are likely to have a much freer choice on a salary sacrifice scheme than a typical company car scheme and so can have the car you want, and also you can choose to spend less on the car and pocket some of the allowance. Versus buying a car privately, you make all the same tax savings as somebody who wouldn't otherwise get a company car, plus you keep all the convenience advantages of having a company car that you wouldn't have if you bought a car privately (typically tyres, VED, roadside assistance, insurance etc are all taken care of).

    It's worth bearing in mind that buying an older car to do serious mileage can be a false economy - what you save in purchase price and reduced depreciation can very easily be offset in higher fuel consumption and maintenance costs.

    Hope this helps!
  • arran77arran77 Posts: 9,260
    dai_t75 wrote:
    arran77 wrote:
    dai_t75 wrote:
    I haven't been involved in any schemes myself, but have a couple of questions:

    So with the salary sacrifice you essentially pay £3,500 of your salary over as rental of the car - would this be another BIK or would it be at market rate? If it wasn't market rate I can see it being viewed as a benefit.

    When you talk about being paid 45p a mile do you mean the employer actually paying you that, or the statutory amount you can claim tax back on?

    Salary sacrifice means that that for arguments sake you get a £10,000 voucher for a car, the £10,000 gets given to you to go and buy a car with, the £10,000 gets taken out of you salary before you get taxed so your taxable income is reduced therefore resulting in you paying less tax.

    Yes, I understand the bit about reducing your gross before you get taxed. However, a figure of £3,500 has been mentioned and I can't see you getting much car for that unless the scheme was intended for second hand cars (I assumed they would be new). Also 'rent' has been mentioned which is what I am curious about.

    Often the cash allowance is very low in comparison, that's why actually having a car is so attractive as an employee, obviously less so as an employer which is I guess why company cars are becoming less common and cash allowances more so, benefit to the employer really :roll:

    Some employers will put restrictions on what sort of car you can get with the allowance otherwise people may well choose to buy a real cheap old banger and pocket the rest of the cash themselves.

    I think the reference to 'rent' may well refer to people taking out a private lease type agreement which I know exist and would probably be attractive to ex-company car drivers as for a monthly payment you would get the car, insurance, maintenance and all other running costs (excluding fuel) included but obviously at the end of the day you would not own the car so no different to a company car.
    "Arran, you are like the Tony Benn of smut. You have never diluted your depravity and always stand by your beliefs. You have my respect sir and your wife my pity" :lol:

    seanoconn
  • ProssPross Posts: 23,923
    Salary sacrifice car schemes generally work in a similar way to a company car scheme - the car is contract hired from a leasing company and provided to you as a benefit and you pay Benefit in Kind tax for it. If you are not eligible through a traditional company car scheme to receive a vehicle that way, then salary sacrifice makes sense - your company contract hires the car for you in return for reducing your salary by the amount this costs, so this value is effectively paid pre-tax so you save either 20% tax + 12% NI or 40% tax plus 2% NI on the monthly amount. As stated, you then pay BiK tax for having the car, but this should be significantly less (it might not be on a Porsche 911, but on most 'normal' cars it will be) than you would have paid on the now sacrificed salary, and the lower the CO2 emissions of the car you choose, the more you save. Additionally, the leasing company probably buys the car for a lower price than you could and your company will almost certainly get a better rate on the finance than you could.

    The confusion arises where you are 'opted out' of a company car scheme and receive a car allowance instead - to all intents and purposes, the 'car allowance' is just additional salary. The advantage to taking a car on salary sacrifice in these circumstances is likely to be more limited in financial terms versus taking the company car, however you are likely to have a much freer choice on a salary sacrifice scheme than a typical company car scheme and so can have the car you want, and also you can choose to spend less on the car and pocket some of the allowance. Versus buying a car privately, you make all the same tax savings as somebody who wouldn't otherwise get a company car, plus you keep all the convenience advantages of having a company car that you wouldn't have if you bought a car privately (typically tyres, VED, roadside assistance, insurance etc are all taken care of).

    It's worth bearing in mind that buying an older car to do serious mileage can be a false economy - what you save in purchase price and reduced depreciation can very easily be offset in higher fuel consumption and maintenance costs.

    Hope this helps!

    Perfect, answers exactly what I needed to know. To me it sounds more attractive than just getting the cash and buying my own car as it means no additional debt against my name. As for an older car, I agree but I have a 'spare' knocking around.

    As for the issue with using a bike. I can currently do this despite having a company car but only when it won't take significantly longer. Most of my sites seem to be 100 miles plus so a bit too far!
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