HMRC Clarifies Salary Sacrifice Car Scheme Tax

As reported previously, Salary Sacrifice schemes changed in April 2020 when the government provided further clarification around tax for fully electric, hybrid and other low emission vehicles. Further increasing the attractiveness of getting a new vehicle via a salary sacrifice scheme.

For electric cars, the BiK rate is 1% for the 2021/22 financial year. The rate will rise to just 2% in 2022-23. Meaning this tax break could make salary sacrifice an “effectively perfect” perk for drivers who want electric cars.

For vehicles ordered from January 2022

A driver will be taxed on whatever the greatest is between:

a) the Income Tax due on the amount of salary sacrificed on the finance rental of the vehicle, or
b) the Benefit in Kind (BIK) charge on the car, which is determined by the P11D and CO2 emission levels of the vehicle.

A driver will not pay income tax on the amount of salary sacrificed to cover the maintenance and insurance elements in the agreement, saving them money. Even more savings can be had by encouraging employees to opt for low emission vehicles as drivers will only be charged the benefit-in-kind on the vehicle, providing savings for the amount of salary sacrificed.

Driver with car keys

How does a salary sacrifice scheme work?

Salary Sacrifice is a benefit scheme that enables employees to get a brand electric car. As part of the group behind Evans Halshaw and Stratstone, we can offer your employees amazing corporate discounts on new cars and an all-inclusive fixed monthly price that includes tax, insurance, maintenance and more.

As the employer you lease the car on behalf of your employee and they then get to drive a brand-new car using part of their gross salary - making savings on income tax and national insurance.


Costs and savings

The benefits of salary sacrifice

The benefit of salary sacrifice is always the convenience of an all-inclusive monthly fee that incorporates full maintenance, tyres, insurance, road tax and breakdown cover, as well as the fact that no credit check or deposit is required. 

A new car can help increase employee motivation, leading to improved productivity and retention and as the employer it costs you zero to set up and is easy to run. No catch. Just really great value. A Pendragon salary sacrifice car scheme can also help towards meeting duty of care obligations for drivers who use their own vehicles for business use. By providing your drivers with brand new, fully maintained vehicles equipped with the latest in vehicle safety and technology.

You can find out more about the Pendragon salary sacrifice scheme Let's Drive here.


Other potential savings

The main advantage to employers for implementing salary sacrifice schemes are the savings they make in National Insurance Contributions (NICs). Employers pay NIC contributions on employees’ salaries but benefits such as salary sacrifice are exempt.

Employees will also be financially better off as they pay less tax and NIC on their salaries while getting to enjoy a brand-new vehicle that would have cost significantly more through personal or business contract hire.

If choosing an electric car employees can typically save 30-40% of costs through income tax and national insurance.

Get in touch

Thinking about adding Salary Sacrifice to your employee benefits package? Talk to a member of our team to discuss how you can use Pendragon Let's Drive to attract, reward and retain your team members - call 01332 267 389