Sal Sac: a hybrid approach to reduce emissions and increase wages
Over the past year, there has been an increased demand for businesses to be more environmentally friendly, especially as strict national lockdowns and reduced travel have led to a significant reduction in carbon emissions.
And with the government’s 2030 deadline to ban the sale of new gasoline and diesel vehicles also approaching, alongside the reduction in benefit-in-kind (BIK) tax rates, many now want to go electric.
David Bushnell, Senior Consultant at Alphabet (GB) explains the benefits of using the wage sacrifice to trade in for an electric vehicle:
Given this timeline and the higher upfront costs associated with electric vehicles (EVs) and plug-in hybrids (PHEVs), we will likely see a shift towards more people opting for rental models instead of purely buying. and simply.
While EVs can be more expensive up front, it’s important to look at the Vehicle’s Whole Life Cost (WLC), where we’re starting to see the financial benefits of going electric. These benefits are further heightened when combined with a company car program, which is why many fleet operators choose to switch to electricity through their employers.
However, not all companies are able to afford the cost of mid-range EVs as part of their company car allowance, and with the latest government cuts in plug-in subsidies lowering the cap subsidy. Prices from £ 50,000 to £ 35,000, drivers can now be more limited in their choice of model.
But there is a way for companies to give their employees the electric vehicle they want, without costing them anything extra. This is done through a WLC model and by taking advantage of the tax efficiency gains that arise from trading schemes, such as wage sacrifice, or the more commonly used private use contribution.
Contribution for private use
When a driver is able to trade in by contributing to their company car allowance, they will often pay the additional funds through a private use contribution (PUC). This is taken from an employee’s after-tax salary and allows them to move away from more traditional and gasoline-powered vehicles and switch to electric.
When the PUC is detailed as a condition for the car to be available for the private use of the employee, comes the benefit of a reduction in the benefit-in-kind (BIK) tax rates for the driver, while the company sees a reduction in national insurance.
However, the company will also experience a small increase in PUC’s corporate tax. Overall, both fluctuations in the company’s tax balance and its original company car budget are maintained. It should be noted, however, that HMRC may not consider payment for the use of a more expensive car to be eligible for the BIK reduction and tax advice should be sought.
A trade-in to an electric vehicle using the PUC allows drivers to choose the vehicle of their choice, making employees happy and at no additional cost to the business at large. In fact, the company could also benefit from switching its driver to electric, as this will positively contribute to its overall sustainability goals. However, there is an even more cost effective way for employees to trade in for an electric vehicle. The best option for this is often a wage sacrifice program.
Salary sacrifice is a concept that has been around for some time and is widely known and used in various forms of corporate mobility, such as cycle-to-work programs or train ticket loans. One of the most beneficial ways to use the pay sacrifice, which is less well known, is when an employee is looking to trade for an EV.
A key benefit of using a wage sacrifice system is that the payment contribution is taken from an employee’s pre-tax wages, which effectively lowers their overall wages and, as a result, lowers their rate of pay. personal taxation, making it a more efficient approach.
Trading an electric vehicle in this way allows drivers to have the most expensive electric vehicle of their choice, with lower BIK tariffs to switch to electric, while also enjoying a lower monthly contribution and a reduction of their income tax and national insurance through a reduced salary.
The company does not incur any additional costs again using this take-back method, and its original budget for company cars is maintained, while also benefiting from a better CO2 contribution. But through the sacrifice of wages, the company can help its drivers achieve substantially greater savings on their vehicle contract than with PUC – often thousands of pounds over the course of the contract.
Plus, any business that has ever used a work cycle or other travel allowance system can easily integrate this process into their systems, making it a simple change.
There are many benefits to allowing employees to use trade-in programs, especially because it helps companies maintain company car systems, without the need to switch to a cash alternative. While a private-use contribution model has its advantages, using a wage sacrifice system is the best way to save your employees money when negotiating up to an EV.
Through a pay swap program, combined with a Pure Electric or Plug in Hybrid company car, employees use their swap contribution in the most tax-efficient way and the benefits are obvious; employees basically get a pay rise due to the substantial savings and can switch to electric with any vehicle they want at no additional cost to the company.