Salary sacrifice explained
Salary sacrifice is a tax-efficient way for you to drive a brand-new electric car for a great deal less than if you leased it privately. The following Frequently Asked Questions outline the benefits of participating in the Scheme and how it works in practice.
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Overview
How does the Fleet Alliance Electric Car Salary Sacrifice Scheme work?
Should you wish to join the Scheme you would formally agree to sacrifice part of your gross salary. In return, your employer would provide you with the zero-emission company car of your choice, which will be leased by your employer via Fleet Alliance Limited.
How much could I save?
The advantage of salary sacrifice is that you do not pay income tax or NIC* on the amount sacrificed. Although company cars are subject to taxation as a benefit-in-kind, over the next few years the income tax due on zero-emission electric cars will be substantially less than the income tax and NIC saved on the salary sacrificed.
And using Fleet Alliance’s multi-bid approach, which ensures you always get access to the most competitive lease deals, you would be able to drive a brand new car for a much lower cost than if you leased it personally from your net income.
Your precise savings will depend upon your personal tax circumstances and the make and model of the car you choose. Refer to the Electric Fleets section of Fleet Alliance’s website for further information and guidance on electric cars.
* As the Health and Social Care Levy, introduced on 6 April 2022, will be included within National Insurance Contributions during 2022/23, within this guide references to “NIC” include “HSCL”.
What would I be entitled to if I joined the Scheme?
The Scheme includes the provision of the car, including road fund licence, servicing, maintenance, fully comprehensive motor insurance and roadside assistance. Your employer may, at its discretion, offer protection against early termination charges arising in certain circumstances, in respect of which an additional contribution may be included within your salary sacrifice.
How many cars would I be allowed under the Scheme?
The Scheme allows eligible employees to have up to 2 cars. However, if you already have an allocated company car this would count as part of your entitlement under the Scheme.
Are second-hand cars be available under the Scheme?
Yes. However, availability would be limited to Scheme cars which have been handed back by other participants before the end of their agreed salary sacrifice term.
Is salary sacrifice right for me?
In order to benefit from the tax and NIC advantages, HMRC requires that the salary sacrifice must be a formal change to your terms and conditions of employment rather than an informal arrangement that you can simply amend at your discretion. For this reason, participants are required to take part in the Scheme for at least 2 years.
Therefore, leasing a new car via a salary sacrifice scheme, although tax-efficient, is a long-term financial commitment which should be considered thoroughly before proceeding.
What are the criteria for eligibility?
To be able to participate, in addition to being eligible for the Scheme insurance, you would be required to:
- earn a salary sufficient to enable the sacrifice due under the Scheme to be made without reducing your post sacrifice revised salary below the National Living/Minimum Wage; and
- be aged 21 or over.
Your employer may also stipulate that you:-
- are a permanent member of staff, not on a temporary or fixed-term contract and no longer subject to a period of probation;
- are not the subject of any disciplinary or redundancy proceedings or given notice of your intention to leave employment; and
- are not on long term sick leave, sabbatical or parental leave.
Can part-time staff join the Scheme?
Part-time employees would be eligible to participate provided certain requirements are met.
Financial implications
Salary sacrifice will be financially beneficial for most employees, but please refer to the following questions to determine how participation in the Scheme may impact your overall financial position.
How would my pay be affected if I participate in the Scheme?
If you decided to take part in the Scheme your total gross pay would be reduced by an agreed amount and in return, your employer would provide you with a fully maintained and insured zero-emission company car.
How would participation in the Scheme affect the amount of income tax and NIC I pay?
You would no longer pay income tax or NIC on the gross salary you give up. But as the car is a company car, and therefore a taxable benefit, you would pay income tax on the value of the benefit.
Would participation affect any other payments or benefits made to me by the Company?
Your participation in the Scheme should not affect any other salary-related earnings as all future pay rises, salary-related pay and benefits provided by your employer, including bonuses, commissions, overtime and shift premium, should continue to be based on your original salary before taking account of any salary sacrifice adjustment.
What if participation causes my salary to fall below the National Minimum Wage?
Your pay must not fall below the National Living Wage or the National Minimum Wage
If I joined the Scheme could my entitlement to state benefits be affected?
Your entitlement to state benefits may be affected as a result of your participation in the Scheme if your average gross weekly earnings fall below the weekly earnings threshold*.
As your employer regularly monitors levels of pay to ensure its legal obligations are met, if your salary is likely to fall below any of the relevant statutory thresholds, and you may be adversely affected by joining the Scheme, your employer should liaise with you to help you consider your personal circumstances and make the best financial decision for you.
* Equivalent to the Lower Earnings Limit of £123 per week for 2022/23.
Are there any other implications of joining the Scheme?
Deciding to join a salary sacrifice scheme could have a number of implications such as potentially affecting your entitlement to tax credits, the amount you repay to the Student Loan Company or your entitlement to the State Pension.
If you are unsure about the impact salary sacrifice could have on your personal finances you should consult an independent financial adviser.
Taking part
Which cars could I choose under the Scheme?
Your choice of car would be restricted to electric cars only and may be affected by your salary and the availability of insurance, which may depend on your age and postcode.
How would I find out which cars are available?
From e-Fleet, Fleet Alliance’s cloud-based management and reporting platform, you’ll be able to access a dedicated salary sacrifice portal via which you’ll be able to search for your ideal electric car from the hundreds of models now available from a wide range of manufacturers.
Could I choose colours and add options?
Yes. Choice of colour and options made available by your chosen manufacturer are permissible.
What would be included with my car?
In addition to your brand new electric car, the Scheme includes servicing, maintenance, fully comprehensive motor insurance and roadside assistance.
How would I order my chosen car?
Once you’re ready to order a car you should submit an enquiry from Fleet Alliance’s dedicated salary sacrifice portal to e-Fleet.
What happens once I place an order?
Once authorisation has been received from your employer, and you and your employer have signed the salary sacrifice agreement, Fleet Alliance will place the order with the dealer, finalise the lease with the chosen lender and let you know the estimated delivery date.
How long must I keep the car?
Your contract is for a fixed term of 2, 3 or 4 years. Within 4 months of the end of your contract, Fleet Alliance would contact you to discuss your options and your potential choice of a new replacement car.
How do I find out how much my salary sacrifice would be?
You will be provided with a quote from Fleet Alliance which would contain the gross salary sacrifice you will make each month.
When would my salary sacrifice start?
Your first salary sacrifice would be made in the month following delivery of your car.
When would I organise the installation of a charge point for my home?
You would organise the installation of a charge point at your home once your car has been ordered.
Fleet Alliance has teamed up with PodPoint to offer home charge point installations for Scheme participants. PodPoint offers standard installation of a 7kWh charge point for less than £600 (although this price may be subject to change), after the deduction of the UK grant, which is applied for on your behalf by PodPoint if you are eligible.
Would I get the range I expect from my car?
As with any car, the range you get during day-to-day driving is likely to differ from the official range stated by the manufacturer, and electric cars are no different. The actual range your car achieves would depend on a number of factors including:
- temperature, the batteries are less efficient in the winter;
- speed, electric cars are more efficient at lower speeds;
- the route you take, hills will take more power from the battery;
- how you drive
- use of the heater or air conditioning.
But you should remember that your car will also ‘make’ additional electric miles on many journeys, where you drive economically and at lower speeds.
How long would it take to charge my car?
Charging times vary depending on the battery capacity, the charging speed of the car and the speed of the charge point, but however fast the charge point the charging time will be limited to the maximum charging speed of your car. So, if your car has a 7kW charging speed, if the charging unit has a speed of 50kW your car will still only be able to accept charging at 7kW.
Would I need to change my electricity tariff?
No, but we advise that you review your tariff with your energy supplier to ensure you would still be on the best tariff once you start charging your car at home.
How would I manage the maintenance of my car?
General maintenance and breakdown services would be included within your salary sacrifice, but it is your responsibility to ensure the car is maintained to manufacturer standards until you return it.
To arrange servicing, maintenance or repairs you would contact your lender via the dedicated support line accessible from Fleet Alliance’s e-Fleet mobile app.
What would happen if I leave employment?
You would be unable to continue to participate in the Scheme if you leave your employer’s employment for any reason. You would therefore have to return the car to your employer.
How would I organise a new salary sacrifice car at the end of the contract term?
Fleet Alliance would contact you 4 months prior to expiry of your current agreement to outline the process to return your car and renew your participation in the Scheme.
What would happen when I return my car?
Following its return to the lender your car would be inspected. This inspection would note any damage to the car in accordance with BVRLA Fair Wear & Tear standards, along with the completed mileage.
- Unfair wear and tear – Where the car has been damaged beyond what is deemed to be fair wear and tear a charge may be levied to repair the damage.
- Excess mileage – If the car’s mileage has exceeded the contractual mileage, an excess mileage charge may apply.
- End of contract charges – When completing your application to join the Scheme you must agree that you are responsible for any applicable fair wear and tear or excess mileage charges following the return of the car.
What is an early termination charge?
An early termination charge is the amount payable should your participation in the Scheme cease before the end of the agreed term and your car is returned to the lender. Any early termination charge will be calculated and notified to your employer by Fleet Alliance as soon as possible following receipt of the notification of early termination.
Subject to certain possible exceptions, per the terms and conditions of the Scheme where an early termination charge arises it will be recharged to you by your employer via a deduction from your net pay, or by invoice if you have left employment.
Would I have to pay an early termination charge?
If you have to leave the Scheme early, if you do not arrange to purchase your car, subject to the discretion of the lender, and your employer is not able to offer you an alternative arrangement, such as a reallocation of your car to another employee, the early termination charge would be passed on to you by your employer unless your employer exercises its discretion to waive some or all of the charge.
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