Effective Company Car Schemes: A Guide for Employers

Unlock the potential of salary sacrifice car schemes to offer your employees a valuable benefit while promoting a greener, more efficient fleet.

Understanding Company Car Salary Sacrifice: What It Is and How It Works

Salary sacrifice is an innovative financial arrangement that allows employers to provide their employees with access to a new low-emission vehicle at a significantly reduced cost. This is achieved through a tax-efficient payment method that benefits both parties. In this scheme, employees agree to ‘sacrifice’ a portion of their pre-tax salary in exchange for a non-cash benefit, such as a brand-new lease car.

This arrangement results in a reduction of the employee’s taxable income, thereby lowering the amount of income tax and National Insurance contributions they are required to pay. Consequently, employees can enjoy the advantage of acquiring a brand-new electric or hybrid vehicle of their choice, which they can use for personal or professional purposes. The vehicle is provided for a fixed monthly amount, which remains consistent over the lease term, typically spanning 2, 3, or 4 years. This predictable payment structure not only facilitates easier budgeting for employees but also ensures they have access to the latest in automotive technology, contributing to a more sustainable and environmentally friendly lifestyle.

The benefits to employees don’t stop there either, as the scheme gives them access to beneficial corporate purchase and servicing rates. There is no deposit necessary, the monthly rental is fixed, making budgeting easy, and for total peace of mind, the agreement provides for unlimited tyre replacement, all servicing, repairs, and breakdown cover, it even covers road tax, where applicable.

Key Benefits for Both Employers and Employees

For employers, the implementation of a salary sacrifice car scheme offers a range of financial and operational advantages. One of the primary benefits is the potential for significant savings on National Insurance contributions, which can enhance the overall financial efficiency of the organisation. Additionally, for VAT-registered companies, there are opportunities to achieve VAT savings, further contributing to cost-effectiveness. Beyond financial savings, the scheme provides a strategic advantage by enabling employers to de-risk their fleet operations. This is achieved by phasing out ‘grey fleet’ vehicles, which are privately owned vehicles used for business purposes, thereby reducing liability and ensuring greater control over fleet management.

Moreover, the scheme plays a pivotal role in supporting the transition to a more sustainable and environmentally friendly fleet. By encouraging the adoption of low-emission vehicles, employers can align their operations with Environmental, Social, and Governance (ESG) goals, demonstrating a commitment to sustainability and corporate responsibility. This alignment not only enhances the company’s reputation but also contributes to its long-term strategic objectives, such as striving towards achieving B-Corp status. B-Corp certification is a recognition of a company’s dedication to meeting high standards of social and environmental performance, accountability, and transparency, and the salary sacrifice car scheme can be a significant step towards this prestigious accreditation.

Implementing the Scheme: Steps for Employers

Implementing a salary sacrifice car scheme is a straightforward process that can be broken down into several key steps to ensure a smooth and effective rollout. Initially, employers must establish clear eligibility criteria to determine which employees can participate in the scheme. Typically, this includes individuals at the management level and above, as these roles often align with the financial capacity required to benefit from such a program. It is generally recommended that eligible employees have a minimum salary of £32,000 to ensure that the financial commitment of the lease payments does not become a burden.

Additionally, it is crucial to ensure that participating employees are not currently in a probationary period, as this could affect their job stability and financial security. Furthermore, meeting the minimum age requirement is essential to comply with legal and insurance stipulations associated with vehicle leasing. By carefully considering these factors, employers can effectively implement a salary sacrifice car scheme that is both beneficial and sustainable for their workforce.

Next, employers should conduct a thorough analysis to estimate how many employees are likely to participate in the salary sacrifice car scheme. This involves assessing the workforce demographics, understanding employee interest in such benefits, and considering the financial profiles of potential participants. By doing so, employers can better anticipate the level of engagement and tailor the scheme to meet employee needs effectively. Once the potential participation rate is determined, the company should proceed to establish a contract hire arrangement. This arrangement is a critical component of the scheme, as it outlines the terms under which vehicles are leased to employees.

It is advisable to include termination cover within this arrangement, providing a safety net should an employee leave the company before the lease term concludes. This ensures that the company is not left with unexpected financial liabilities. Additionally, setting a cap on the list price of the vehicles available through the scheme is prudent. This cap helps manage costs and ensures that the vehicles offered align with the company’s budgetary constraints and sustainability goals.

Employers should also engage in strategic collaboration with a reputable service provider, such as Anglo Scottish Finance, to facilitate the seamless integration of the company car scheme into the business’ payroll system. This partnership is essential for ensuring that the scheme is administered efficiently, with clear processes for deductions and benefits management, thereby enhancing the overall experience for both the employer and the employees.

Choosing the Right Vehicles: Aligning with ESG Goals and Employee Preferences

Furthermore, offering a variety of electric and hybrid options ensures that employees have the flexibility to choose a vehicle that best suits their personal and professional needs, thereby increasing the attractiveness and uptake of the scheme. This strategic selection of vehicles not only benefits the environment but also enhances employee satisfaction and engagement, as they feel part of a forward-thinking and responsible organization.

Additionally, it’s important to consider employee preferences. The scheme should be flexible enough to allow employees to choose the car they want, rather than being limited to a specific selection. This approach ensures higher employee satisfaction and uptake of the scheme.

Insights from Andrew Morris: Best Practices and Considerations

Andrew Morris, Head of Vehicle Solutions at Anglo Scottish Finance, underscores a comprehensive set of best practices and considerations essential for the successful implementation of a salary sacrifice car scheme. He stresses the critical importance of maintaining clear and transparent communication with employees regarding the many benefits and intricate details of the scheme. This involves not only outlining the financial advantages and environmental impact but also providing detailed explanations of how the scheme operates, including the tax implications and the process for selecting and leasing vehicles.

Andrew advises employers to ensure that the scheme is seamlessly integrated into the payroll system, facilitating straightforward administration and minimising the potential for errors or delays in processing. This requires collaboration with a reliable and experienced service provider who can offer robust support and guidance throughout the implementation process. Such a partnership is vital to ensure that all aspects of the scheme, from vehicle selection to financial deductions, are managed efficiently and effectively.

Furthermore, Andrew recommends establishing clear eligibility criteria to ensure that participating employees are financially capable of meeting the lease payments without experiencing undue financial strain. This involves assessing employees’ financial situations to confirm that their participation in the scheme will not adversely affect their overall financial well-being. By setting these criteria, employers can safeguard both the employees’ interests and the financial integrity of the scheme, ensuring it remains a sustainable and beneficial offering for all parties involved.

If you’d like to discuss the company car scheme options available, please reach out to our team.