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Salary sacrifice for car schemes myth buster

Written by | Posted on 14.02.2017
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salary sacrifice changes

Chancellor Philip Hammond outlined a raft of changes to salary sacrifice schemes in his 2016 Autumn Statement. These revamped regimes will be rolled out from April 2017.

To help you navigate the way they’ll work, we’ve picked out some of the common myths about the new-look salary sacrifice schemes and the truths behind them.

April 2017 is set to be a month of change for many, with a shake-up of the way salary sacrifice schemes work.

Salary sacrifice schemes enable employers to offer more benefits to their employees in a cost effective way. In return for giving up part of their salary, employees receive a non-cash benefit which comes out of their pre-tax pay.

That’s set to change, with most benefits now subject to income tax and national insurance contributions. But there are plenty of myths about the biggest tweaks to salary sacrifice schemes.

Here are the ones you need to be aware of – along with the facts behind them:

Myth #1 There are no employer NI savings

Thankfully, this isn’t true. For example, for Ultra Low Emission Vehicles (ULEVs) which emit less than 75g of CO2 per kilometre, national insurance savings will still be available. For the majority of schemes, these savings will be passed on or shared with the employee.

Myth #2 Costs will go up

Any change in cost will be entirely dependent on your vehicle choice. Those with ultra-low emission vehicles won’t see any change. It depends on the scheme you use, but for most vehicles above this threshold the effect will be minimal.

Myth #3 Only electric cars will be available

This simply isn’t true. All vehicles will continue to be available on salary sacrifice schemes. In most cases, tax costs will be unchanged or only a little higher than they are now.

However, there’s more incentive for ULEVs as they’re exempt, plus they’ll benefit from new tax rates which come into effect in 2020/21. Not only will they be cheaper to run, they also reduce an employee’s carbon footprint and help improve urban air quality.

Myth #4 It will be abolished in 2021

Employees already in contracts before April 2017  will be protected from the new rules until April 2021. No announcements have been made post April 2021 and it’s widely expected that the practice will continue under existing rules.

Myth #5 You need to order your car before April 6th

Again, this is a myth. Any vehicles delivered or ordered prior to the new tax year will fall under the existing rules, protected until April 2021. Any arrangements made from the new tax year will fall under the new rules. For most, this will be a seamless switch from one framework to another.

Myth #6 Businesses have stopped signing up for schemes

It’s true to say many companies were holding their breath. But with the government making their position clear things have returned to normal, with high levels of activity and new schemes being launched. Salary sacrifice schemes will continue to provide employees with attractive benefits, particularly on ULEVs.

 


 

Looking for more information on salary sacrifice changes or have specific questions you need answering? Please speak to your Account Manager – they’ll be happy to help.

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