Salary Sacrifice Overview

All You Need To Know About Salary Sacrifice Continue Reading

17th Aug 2023 |
Salary Sacrifice Overview


Salary sacrifice is a tax efficient way for you to drive a brand-new electric car for a great deal less than if you leased it privately. Your employer is therefore delighted to be able to offer a range of zero emission company cars via the Vavoom Electric Car Salary Sacrifice Scheme (the “Scheme”). The following Frequently Asked Questions ("FAQs") outline the benefits of participating in the Scheme and how it works in practice.

What is salary sacrifice?
Salary sacrifice is an arrangement under which an employee agrees to give up some of their gross salary, that is your salary before income tax and National Insurance Contributions ("NIC") have been deducted, in exchange for their employer’s agreement to provide a non-cash benefit, such as a company car.

How does the Scheme work?
Should you wish to join the Scheme you would formally agree to sacrifice part of your gross salary. In return your employer will provide you with a zero emission company car, which will be leased by your employer via Vavoom Limited, a specialist contract hire and fleet management business.

How much can I save?
The advantage of salary sacrifice is that you do not pay income tax, or NIC on the amount sacrificed, which is typically calculated as the cost to lease, maintain and insure the car. Although company cars are subject to taxation as a benefit-in-kind, over the next few years the income tax, commonly referred to as "Benefit in Kind" or "BiK tax", due on zero emission electric cars, will be substantially less than the income tax and NIC saved on the salary sacrificed.

You will therefore be able to drive a brand new car for a much lower cost than if you leased it personally from your net income, a lease on which you would also have to pay Value Added Tax ("VAT") at 20%.

Your precise savings will depend upon your personal tax circumstances and the make and model of the car you choose. Your Account Manager, Stuart Adam, has a suite of sample quotes covering the most popular salary sacrifice vehicles, which he will be pleased to share with you upon request.

Why is your employer implementing the Scheme?
To provide its employees with a cost-effective way of acquiring a new electric car, by making the most of the significant savings available from the tax efficient leasing of a zero emission company car. It enables your employer to address the increasing demand from employees to adopt green initiatives and enhance its overall reward package, which help to recruit and retain the right people.

Do other employers have similar schemes?
Yes. Many employers in both the private and public sector operate similar schemes for their employees.

What will I be entitled to if I join the Scheme?
The Scheme includes the provision of the car, including road fund licence, servicing, maintenance, fully comprehensive motor insurance and roadside assistance. Your employer also provides protection against early termination arising in the following circumstances:
• resignation;
• accidental death; or
• loss of your driving licence on medical grounds.

See the section entitled 'End of contract and early termination' within the full downloadable brochure for further information.

Will my salary sacrifice change each year?
As the motor insurance premium included within your salary sacrifice may change each year your salary sacrifice may vary each year, although we anticipate the change will be modest unless you have made a claim.

Any future BiK tax increases will be reflected in changes to your tax code, which will affect your take home pay.

Are there any other charges?
Your salary sacrifice will cover the cost of leasing the car and the ancillary services such as maintenance, motor insurance and early termination insurance, but Vavoom may apply additional, out of contract charges, in certain circumstances. For example, if you commit a parking offence you will be liable for any penalty, which will be recharged to your employer by Vavoom and deducted from your net pay. Other charges can include puncture repairs, loss of keys, consumable items used between servicing, and windscreen repairs.

How many cars am I allowed under the Scheme?
The Scheme allows eligible employees to have up to [2] cars.[ However, if you already have an allocated company car this will count as part of your entitlement under the Scheme.]

Will I own the car?
No. You will not own the car during the term of your salary sacrifice agreement. At the end of your agreement, including early termination, the car must be returned to the lender, unless you reach a separate agreement directly with the lender to retain the car.

Is salary sacrifice right for me?
In order to benefit from the tax and NIC advantages, HMRC requires that the salary sacrifice must be a formal change to your terms and conditions of employment rather than an informal arrangement that you can simply amend at your discretion. For this reason, we require employees to take part in the Scheme for the duration of the contract.

Therefore, leasing a new car via a salary sacrifice scheme, although tax efficient, is a long-term financial commitment which should be considered thoroughly before proceeding. You are advised to read and take account of all the issues raised in these FAQs, which have been designed to answer the questions that are most frequently asked about salary sacrifice and the Scheme.

You should use these FAQs as a guide to satisfy yourself that a company car taken via salary sacrifice will meet your lifestyle needs throughout the duration of the contract and that you understand your rights and obligations under the Scheme. If you have any questions or require any further information please speak to the person within your fleet and/or HR department who is responsible for operating your employer's Scheme.

Do you have more information for me?
Absolutely. We have a full brochure on all 'Frequently Asked Questions' regarding Salary Sacrifice which is accessible here. Alternatively, you can call our Account Team to discuss in more detail on 0344 264 4177.

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