Salary sacrifice is a payment system which has attracted a significant amount of attention in recent years. Chancellor Phillip Hammond used the 2016 Autumn Statement to announce these kind of schemes would be taxed in the same way as cash income from April of 2017.
In their basic form, salary sacrifice schemes involve employees exchanging part of their salary for a non-cash “benefit-in-kind”. With this benefit taxed at a lower level than a salary, both companies and staff are able to make a tax saving. Essentially, no tax or national insurance is paid on the earnings that are being sacrificed.
The good news for small and medium-sized businesses with a fleet requirement is that the lower taxes available through salary sacrifice for cars are protected till April 2021.
Cars with lower emissions tend to be more popular through salary sacrifice schemes, because of the tax breaks on offer, with the lower tax band of five per cent applying to all cars emitting 50g/km of CO2.
The key issues to take into account relate to parental leave and the early cost of termination. Businesses are legally obliged to provide all the benefits of a salary sacrifice scheme while a staff member is on maternity or paternity leave, while employees leaving a job have to either give up their car or pay an early termination fee.
Changes or updates will need inserting into employee contracts, reflecting additional VAT or national insurance contributions.
If you’ve found this article useful then make sure you visit our complete A-Z of business fleet terms, which provides a complete glossary so you can make an informed purchasing decision.
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