Pros and Cons of Salary Sacrifice for a Company Car in the UK

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Key takeaways:

• Salary sacrifice for a company car can result in tax savings, especially for higher earners.
• Early termination fees and restrictions on personal use are potential drawbacks to consider.
• Eligibility criteria, such as income requirements and employment length, may vary by employer.
• When choosing a salary sacrifice scheme, consider factors such as car make and model, fuel efficiency, insurance costs, and maintenance.
• Expert advice and resources, such as financial advisors and the HM Revenue & Customs website, can be helpful when deciding on a scheme.

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Introduction

If you're considering getting a company car, you may have heard of a scheme called salary sacrifice. This scheme allows you to give up a portion of your salary in exchange for a new car, which your employer leases on your behalf. But is salary sacrifice for a company car a good idea? In this article, we'll discuss the pros and cons of this scheme and provide expert advice to help you make the right decision.

Benefits of Salary Sacrifice for a Company Car 

One of the biggest advantages of salary sacrifice for a company car is the potential tax savings. Because the car is leased on your behalf, you don't have to pay tax on the full amount of your salary. This can result in significant savings, especially if you're in a higher tax bracket. Another advantage is that you can get a new car without having to pay a large upfront cost. Additionally, the convenience of having a new car can be a huge benefit for those who rely on their car for work.

Drawbacks of Salary Sacrifice for a Company Car

While there are many benefits to salary sacrifice for a company car, there are also some potential drawbacks to consider. One of the biggest is early termination fees. If you need to end your lease early for any reason, you could be hit with significant fees. Another potential drawback is that you may be restricted in terms of personal use of the car. You may also have limited car choices, which could be a disadvantage if you have specific requirements for your car.

Eligibility and Criteria for Salary Sacrifice

To be eligible for salary sacrifice for a company car, you typically need to meet certain income requirements and have been employed by your company for a certain amount of time. Your employer may also have specific requirements, such as a clean driving record or a certain credit score. It's important to research these criteria carefully and ensure that you're eligible before signing up for a salary sacrifice scheme.

Choosing the Right Salary Sacrifice Scheme

If you decide that salary sacrifice for a company car is right for you, it's important to choose the right scheme. Some factors to consider include the make and model of the car, fuel efficiency, insurance costs, and maintenance. You may also want to negotiate the terms of your scheme with your employer to ensure that you're getting the best deal possible.

Early Termination and Exit Strategies

If you need to exit your salary sacrifice scheme early, it's important to understand the potential costs involved. Early termination fees can be significant, so it's important to plan ahead and minimize your costs as much as possible. Some strategies for doing this include finding someone to take over your lease or negotiating with your employer to waive or reduce the fees.

Expert Advice and Resources

If you're considering salary sacrifice for a company car, it's always a good idea to seek expert advice. This could include financial advisors, tax specialists, and employer guidance. Some helpful resources include the HM Revenue & Customs website and the Citizens Advice Bureau.

Conclusion

Salary sacrifice for a company car can be a great way to get a new car while saving money on taxes. However, it's important to carefully consider the pros and cons of this scheme and ensure that you're eligible before signing up. By doing your research and seeking expert advice, you can make an informed decision and choose the right salary sacrifice scheme for your needs.

Still confused? Here are our Frequently Asked Questions (FAQs):

Q1: What is salary sacrifice?

A: Salary sacrifice is an arrangement where an employee agrees to give up part of their salary in exchange for a non-cash benefit, such as a company car.

Q2: How does salary sacrifice for a company car work?

A: Under a salary sacrifice scheme, the employer leases a car to the employee and deducts the cost from the employee's pre-tax salary.

Q3: What are the tax benefits of salary sacrifice for a company car?

A: Employees can potentially save money on income tax and National Insurance contributions, while employers can claim back VAT on the cost of the car.

Q4: Are there eligibility criteria for salary sacrifice for a company car?

A: Yes, eligibility criteria may vary by employer, but may include factors such as income requirements and employment length.

Q5: What are the potential drawbacks of salary sacrifice for a company car?

A: Early termination fees, restrictions on personal use, and the risk of losing out on other benefits, such as pension contributions, are potential drawbacks to consider.

Q6: Can employees choose any car under a salary sacrifice scheme?

A: The choice of car may be limited by the employer's scheme and may depend on factors such as make and model, fuel efficiency, and insurance costs.

Q7: Who is responsible for maintaining the car under a salary sacrifice scheme?

A: The employer is typically responsible for maintaining the car, but the employee may be responsible for some costs, such as repairs and servicing.

Q8: Can employees opt out of a salary sacrifice scheme?

A: Employees may be able to opt out of a scheme, but early termination fees may apply.

Q9: How can employees compare different salary sacrifice schemes?

A: Factors to consider when comparing schemes may include the cost of the car, maintenance and insurance costs, and any additional benefits, such as roadside assistance or fuel cards.

Q10: Where can I find more information about salary sacrifice for a company car?

A: Resources such as financial advisors and the HM Revenue & Customs website can provide guidance on salary sacrifice schemes and their tax implications.