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The Salary Sacrifice Sweet Spot

Since its introduction in the 2000s, salary sacrifice vehicle schemes have progressively become one of the most important employee benefits currently available. Following on from the success of the ‘Cycle to Work’ scheme that enabled and encouraged employees to purchase quality cycles using pre-tax salary, the government’s introduction of 2% benefit-in-kind for electric vehicles has made salary sacrifice vehicle schemes the cheapest way to lease a new car.

This has resulted in many employees leasing through salary sacrifice with 70% of this market made up of 20% taxpayers. As the scheme utilises income tax and national insurance savings, the fact is, the more you earn, the cheaper the car will be which then lends the question, why is the market mainly made up of 20% taxpayers?

This could be due to a number of reasons, for example, poor personal credit, the sacrifice includes all running costs for the entirety and the ability to afford a brand new car which may have never been an option in the past. You would also assume that a 40% taxpayer would pay less than a 20% taxpayer with 45% taxpayers enjoying the best savings, however, this is not always the case.


A Car Salary Sacrifice At Its Best

There exists a ‘sweet spot’ for 40% taxpayers who earn between £100,000 and £125,140 gross salary per annum. The reason this occurs is due HMRC rules regarding personal allowance and how this reduces by £1 for every £2 your income rises over £100,000. So, if you are earning £120,000 gross per annum, by opting for a salary sacrifice EV, you are effectively regaining your personal allowance which enhances your salary sacrifice significantly. Suppose you did the same vehicle calculation for a 45% taxpayer who earns over £150,000. In that case, the salary sacrifice difference will be over £100 in favour of the 40% taxpayer who can regain his/her personal tax allowance.

So in summary, the salary sacrifice car scheme benefits all employees regardless of their income tax bracket however certain employees can take advantage of HMRC rules in relation to personal allowance to further enhance the offers available to them.

As time goes on, all businesses can consider salary sacrifice as a significant benefit to offer their employees safe in the knowledge that legislation will not change drastically during any said period. The reason for this is HMRC has not only fixed BIK at 2% until April 2025, but they have also confirmed this will only increase by 1% every year until 2028. The average length of a lease is 3 years so well within this timeframe so all employees can accurately calculate exactly how much the EV will cost for the entirety of the lease.

The global drive to net zero had resulted in the government fixing BIK very low for EVs to incentivise the British people to switch to greener transportation options. The main issue with regard to EVs is cost, and the reality is, the increase in price against equivalent petrol/diesel options will mean sadly, buying a new EV will not be an option. However, with no upfront costs, opting for the same vehicle via salary sacrifice brings the EV back into the conversation.

Going into 2023, we have concluded that more and more companies, from SMEs to large corporations will seriously consider joining a salary sacrifice scheme which, with forever increases in costs and prices, will continue to provide the cheapest lease option which in turn, should result in a reduction in staff turnover whilst giving the company the ability to attract top talent.


Car Salary Sacrifice is Available to All Businesses

So whether you own a business with 1 employee or 5,000, this scheme can be implemented simply, with no start-up or service costs and continual ongoing support from our dedicated team. We also partner with all major brands so can supply all EVs that are currently available in the marketplace which, when quoting through many funders, we are able to offer the best rates currently available.

So whether you are a company owner or an employee, get in contact today with our team who can discuss your requirements and explain, in detail how the scheme works and how best it can be implemented with your business.

The sales team can be reached on 03301746768 or via email, enquiries@salsac.co.uk

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