Thinking of getting a new car through your employer’s car salary sacrifice scheme? Not sure where to start? Confused by information overload?
We get it. Choosing a new car is a big decision. Whether you need something roomy enough for a growing family or are after a super sleek city car that will fit the tightest of parking spaces, it can be hard to navigate the vast choice available.
Starting with the basics, car salary sacrifice schemes mean you exchange some of your pre-tax salary for the benefit of a car instead. Not only can you get a new car but there is no deposit to pay and all the main running costs including road tax, insurance, breakdown cover, servicing and maintenance are included in the price.
With recent regulatory changes, there are even greater savings to be had. But first, let’s tackle the myths we find online most often.
Myth 1 - It’s too expensive
False! There’s actually considerable savings with the salary sacrifice option. You can save all of your National Insurance on the amount you sacrifice for the car, you’ll often benefit from generous manufacturer discounts through the biggest employee benefit car providers and cost savings only paint part of the picture.
Getting your new car via your employer’s scheme removes the cost of insurance, road tax, breakdown cover, servicing, MOT and maintenance including replacement tyres. Plus, there’s 0% deposit and no credit checks.
Best of all, since April 2020, cars producing no CO2 emissions benefit from a 0% Benefit-in-Kind (BIK) tax rate, rising just 1% each year until 2023. This could save you hundreds of pounds a month.
Myth 2 - there’s not enough choice
Not true! You have an enormous range of salary sacrifice cars to choose from. From sleek and sporty to chunky off-roaders, plus a wide range of electric and hybrid models, not only can you choose the car that’s right for you and your family but you can also enjoy all the benefits that come with a company car scheme.
Myth 3 - it could impact my workplace pension
Not necessarily! When you opt for a car salary sacrifice scheme, you agree to exchange some of your pre-tax salary for a benefit instead. Therefore, people can assume that a lower salary figure will be used to calculate salary dependent benefits like your pension.
However, whether salary sacrifice impacts your pension or not will depend on the pension scheme your employer operates and its rules.
Some employers choose to create what’s called a ‘notional’ or ‘reference salary’ which is used for such calculations. This notional salary is your pay rate before any salary sacrifice arrangements. So, if your salary was £30,000 before a car salary sacrifice (or any other salary sacrifice), your employer will use £30,000 as a reference when calculating other benefits like pension contributions. However, other pension schemes, particularly defined benefit pensions - like career average schemes - will be impacted. That’s because employers look at an individual’s average pay over the course of their career and calculate the pension on that basis. A reduction in pay via salary sacrifice will reduce your average earnings across your career and therefore your pension.
If you’re in a final salary pension scheme, salary sacrifice will only impact your pension if you exchange (and therefore reduce) some of your salary in the years before retirement or leaving the organisation. This would impact your final salary on which your pension calculation is based. Does this mean it’s not worth taking up a car via salary sacrifice if you’re in a final salary pension scheme? Not necessarily. A salary sacrifice car could be vital in getting you to work to earn a wage and accrue a pension. And, if the arrangement is better than any deal you could get on the high street, what you lose in pension could be offset in savings. Plus, you could always stop any salary sacrifice arrangements pre-retirement or upon leaving the organisation to ensure your final salary is at its highest.
There’s a lot to consider here, so ask your pensions team to calculate the impact on your pension and compare this with the savings you’ll make via salary sacrifice. This way, you’ll be armed with the facts to help you make the right decision.
Myth 4 - it’ll make it harder to get a mortgage
False! Your notional salary isn’t only used to calculate compensation or benefits. Your employer is also likely to use it to provide confirmation of your earnings if you apply for a mortgage. In the current climate, your mortgage provider will be keen to check your outgoings to ensure you can afford repayments. And your car benefit will form part of this review.
By considering your options in terms of 0% BIK electric cars and by securing a good deal, you can use a company car scheme to reduce your outgoings. Plus you won’t have to factor in depreciation and increased running costs of older cars. Quite simply, the better your deal, the greater spare income you’ll have available to demonstrate even greater affordability.
Conclusion: is a car salary sacrifice scheme worth it?
As you can see, there are a range of benefits that come with salary sacrifice car schemes. You can save money, access tax benefits, reduce maintenance costs and choose a great car that’s right for you.
Want to find out more? Take a look at the great savings you could make to help you decide whether car salary sacrifice is right for you. No deposit, no credit check and a convenient and inclusive benefit. Sign up and see for yourself.