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SALARY SACRIFICE FREQUENTLY ASKED QUESTIONS FOR EMPLOYEES

 

Salary Sacrifice Frequently Asked Questions For Employees

Here we answer the most frequently asked question your employees may have in relation to your salary sacrifice scheme.

For further information, take a look at our guide for employers where we answer the most frequently asked questions on salary sacrifice.

For an accurate quote, please speak with our team today to see how we can help your business and reward your employees.

Contact our Salary Sacrifice Consultants today

 

  1. Salary sacrifice and how it works
  2. Ordering your Salary Sacrifice Car
  3. Salary sacrifice costs
  4. Salary sacrifice eligibility
  5. Benefit-in-kind tax for salary sacrifice cars
  6. Maintaining, servicing and roadside assistance

Salary sacrifice and how it works

 

What is salary sacrifice and how does it work?

Salary sacrifice means taking a reduction in your gross salary in exchange for a non-cash benefit, in this case a car.  There are significant savings to you because you do not pay income tax and national insurance contributions (NIC) on the amount you choose to spend on your car.  Although there will be benefit-in-kind tax to pay on the vehicle, by opting for a fully electric vehicle you will be able to take advantage of the low benefit-in-kind rate of 2% (currently set for up to tax year 24/25).  There is likely to be an overall significant net saving, especially as you will also benefit from our fleet discounts and competitive rates.  Electric or hybrid vehicles with less than 75g/km of CO2 are eligible for the salary sacrifice scheme.

Depending on the details of your employer’s scheme, you can choose your own vehicle and decide on the contract terms (2, 3, or 4 years) and how many miles a year you drive.  There is no upfront payment, and maintenance, servicing and road tax are all included.  Insurance is required and that will be dependent on how the scheme is set up by your company.  You won’t own the vehicle, and the responsibility of the vehicle rests with your organisation, but you will have to ensure it is maintained and serviced in line with the manufacturers’ guidelines and book it in for servicing as required.

Your employer will vary your terms and conditions of employment for the length of the salary sacrifice agreement and provide this to you in writing.  You may be familiar with the way this type of scheme runs if you have participated in the Cycle To Work scheme or taken childcare vouchers, for example.  A vehicle salary sacrifice scheme works in the same way.  The scheme is compliant with HMRC requirements.

It’s important to note that you will not own the vehicle.  The car is on a contract hire agreement for a fixed term, and when the term ends the car is simply handed back, and a new salary sacrifice arrangement is put in place. Alternatively, at the end of the contract you can choose to opt out of a future arrangement and revert back to full salary. The agreement cannot be broken during the term without incurring early termination charges, so it is important to be sure that you are committed to driving the car for the duration of the contract.

 

On what basis is the car provided?

The car is provided under a contract hire agreement which is entered into by your employer. The car is then provided to you for the term of the contract under your employer’s salary sacrifice scheme.  You are responsible for the cost of fuel/electric charging, and you will also have to pay benefit-in-kind tax, as for tax purposes the vehicle is classed as a company car.  At the end for the contract term the car is simply handed back.  It’s important to be aware that you will not own the vehicle, and the vehicle must be maintained to the manufacturers’ guidelines.  There may be end of contract charges if the car is damaged or an excess mileage charge if you go over the agreed mileage stated in the contract.

 

Can I have more than one car under the car scheme?

This is possible, if your salary does not go below the minimum wage.  However, please check the details of your individual employer’s scheme to see if they permit more than one vehicle.

 

When will the salary sacrifice come into effect?

This will come into effect, depending on timings of delivery, either the month your car is delivered or the following month.  This will depend on the payroll cut off for your employer and the date the car was delivered.  It may be that the payments are a month behind delivery, but the same number of payments will still be due to cover the contractual agreement of the vehicle.

 

Does participating in the salary sacrifice scheme change my terms and conditions of employment?

Yes, participating in the salary sacrifice scheme will change your terms and conditions of employment, as you are sacrificing a proportion of your salary in exchange for a car, so this needs to be reflected in your employment contract.

 

If I already participate in a salary sacrifice scheme, can I participate in the car scheme as well?

Yes, this is fine as long as your earnings do not fall below the national minimum wage or the national insurance contributions primary earnings threshold.  You should ensure you can afford any salary reductions in exchange for a benefit, as the contract cannot be cancelled without incurring significant charges unless you leave the company or are made redundant.

 

What happens if I go on maternity/paternity leave or sick leave?

You will be able to continue to use your salary sacrifice vehicle.  If you pay falls below minimum criteria during these periods, your employer will ensure the payments are made.  In certain circumstances, your employer may request payments to be made from yourself after the end of the lease to repay any payments missed when you were below national minimum wage.

 

What if I decide to leave the company during the term of the agreement?

In most cases, your employer will have set up the scheme so there is no cost to you if you leave the company.  However, some employers may require you to pay the early termination charge.

If you are made redundant from your role and leave the company, there is usually no cost to the employee, dependent on the severance package.

If you are dismissed following disciplinary action, there may be early termination charges to pay.

In any event of leaving the company, if there are any end-of-contract charges when the car is returned, you may be liable for paying these.

 

What happens if I am forced to leave the company on the grounds of ill health during the salary sacrifice agreement?

If, during the term of the agreement, you retire due to ill health, there is usually no cost to the employee (subject to any end-of-contract charges).

Depending on your employer’s scheme, there may be an early termination charge if an employee is dismissed due to incapability.

 

What are the benefits of joining my company’s vehicle salary sacrifice scheme?

There are various benefits of participating in the salary sacrifice scheme. There are usually significant overall savings to be made due to the way in which the scheme works.  By sacrificing a proportion of your salary in exchange for an electric vehicle in particular, you pay reduced income tax and national insurance contributions (NIC), offering an overall net saving. 

Although you will be liable for benefit-in-kind tax (company car tax), by choosing a pure electric car, or low emission vehicle less than 75g/km of CO2, the overall net cost of the car and benefit-in-kind tax often works out much lower than the tax and NIC you would pay on your normal salary.  This is also helped by the fact that the cars leased on the salary sacrifice scheme benefit from fleet discounts. Included within the cost of the monthly reduction are routine maintenance and servicing, as well as road tax and roadside assistance.  The vehicle is also insured, and this will be included in the monthly salary reduction. There are no credit checks or upfront payments for you, just one inclusive monthly payment deducted directly from your gross salary.

 

What’s included in the car salary sacrifice scheme?

The scheme makes it as convenient as possible for the driver:

  • The monthly lease costs
  • Routine servicing and maintenance costs including tyre cover*
  • Road tax for the car
  • Roadside assistance and recovery
  • The manufacturer’s warranty
  • Insurance may be included, dependent on your scheme set-up, and is a requirement of driving the vehicle

*Level of tyre cover depends on the maintenance package for your chosen vehicle

 

What is not included in the salary sacrifice monthly costs?

As part of the salary sacrifice scheme, there are a few things which are not included. This includes:

  • The cost of fuel or electric charging
  • Top ups between services of oils, lubricants, screen wash and ad blue
  • Any damage to your car not covered by your car insurance
  • Any applicable insurance excess charges
  • Any excess mileage costs at the end of contract
  • Any mechanical failure or damage to the vehicle due to driver fault
  • Connected services may be charged extra to you by the manufacturer
  • Any rental cars when the car is off the road - if not provided as part of the insurance or by the manufacturer

Is there a minimum or maximum term for the car scheme?

Yes, the salary sacrifice’s minimum term is 24 months, and the maximum term is 48 months.

 

What happens at the end of the agreement?

At the end of the agreed term of your salary sacrifice vehicle, the car is collected from you and returned as you will not own the vehicle under this agreement.  If you are replacing your vehicle with a new one, we can aim to co-ordinate collection and delivery on the same day, wherever possible, so you remain mobile.  Within the current marketplace lead times can be long, so, depending on your requirements, we suggest looking for a replacement vehicle from 9 months before the end of the agreement. 

Once your salary sacrifice car has been collected and returned, it will be inspected and any damage outside the British Vehicle Rental and Leasing Association (BVRLA) Fair Wear and Tear Guide may incur a cost.  If the vehicle is over its agreed contracted mileage, there may also be an excess mileage charge to pay.

 

 

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Ordering your salary sacrifice car

 

Do you offer test drives of the vehicle I am interested in?

No, we do not offer test drives.  It is best to look for this option on the vehicle manufacturer’s website or contact your local franchised dealership. Please ensure that you are insured for any test drives you may organise, as this will not be covered by your employer.

 

What makes and models are available for salary sacrifice?

To benefit from overall net savings and the salary sacrifice scheme, the vehicle must be fully electric or a hybrid vehicle with less than 75g/km of CO2.  This is to take advantage of the low benefit-in-kind tax which allows for significant savings.  Your employer may restrict the list of vehicles to meet their overall objectives or their sustainability agenda.

 

Can I add additional options and extras to my car?

If you are choosing a factory order vehicle, then it is likely that you will be able to add your chosen factory fitted options to your salary sacrifice car. 

If you take advantage of a stock deal for quick delivery, then these cars are usually already built so no factory fitted options can be added.  Stock vehicles usually offer high specifications and are great value, as they usually benefit from significant fleet discount due to a high number of them being purchased for lease.  Choosing a stock vehicle also means that you do not have to wait for factory order lead times, which vary by manufacturer and model, but can be over 12 months in the current marketplace.

 

What paperwork am I required to complete?

You will need to sign a salary sacrifice agreement with your employer, agreeing a salary reduction in exchange for your car.  You will also need to check and sign the order form for your vehicle.  It is imperative that all the information on the order form is correct, as once the car has been ordered it cannot be changed.  The documents will be countersigned by your employer.

 

I placed an order recently but have now changed my mind. What can I do?

Once your order has been placed, there may be order cancellation charges to be paid if you cancel before the car is delivered. These costs will be advised to you as part of your company’s scheme set up.  

Once the vehicle has been delivered, and you remain with your current employer, the contract cannot be terminated without incurring early termination charges. These can be as much as 50%-100% of the outstanding rentals.  An early termination quote will be provided to your organisation and the costs may be passed on to you, dependent on the terms of your company’s scheme. 

If you leave the company by handing in your resignation or are made redundant, your car will be handed back and there will likely be no cost to you, but you should confirm this directly with your human resources department.  In certain cases, early termination costs will apply.

 

How are the cars sourced?

The cars are sourced direct from the manufacturer, using our long-term manufacturer and dealership relationships to secure the best rates due to our fleet buying power.  Our carefully selected finance providers also source vehicles directly from the manufacturer to secure significant discounts.  Your salary sacrifice vehicle will be delivered to you directly from the vehicle manufacturer or dealer.

 

What happens if I drive more miles than my agreement allows for?

If you find that you are driving more miles than you originally anticipated, you will be charged an excess mileage charge for each mile you over on your contract.  This is because the car will be worth less at the end of the contract and there may be additional servicing and tyre costs.  The excess mileage costs will be included in your quotations before you place your order, so you are fully aware of this in advance.  Some employers may also allow you to recontract your mileage so that it is more accurate, which means that your monthly salary sacrificed amount will increase and you may also need to sign an amendment to your existing agreement with your employer so it is accurate.

 

What if I drive less miles than I originally anticipated?

If you drive less miles than you originally thought you would, there is no change to your salary sacrifice amount.  After 12 months, it may be possible to adjust your mileage on the contract, which would mean that you would require an amendment to your existing agreement if you salary sacrifice amount changed.

 

Can I add additional drivers to my insurance on my salary sacrifice car?

This will depend on the scheme rules set up by your employer and which insurance option your employer has opted for, so you should check with your company.  However, it is likely that you will be able to add an additional driver, over 18 with a full driving licence, if they live at the same address as you.

 

What happens if I decide I don’t want the vehicle any longer?

The term of your salary sacrifice agreement is a contractual agreement, so before you commit you should be sure that you are happy to drive the vehicle for your chosen term.  If you no longer want the vehicle, you will be provided with an early termination quotation and responsible for the cost if you wish to hand the car back early.  This is between 50%-100% of the outstanding monthly payments for the term of the contract, depending on the finance provider’s conditions of lease for the vehicle.  

 

When should I arrange to sell my current car so I can participate in the salary sacrifice scheme?

If you are dependent on your current car for transport, we advise not to sell your car too early.  We will provide you with an estimated delivery date when you place your order.  However, this can change, particularly for factory order vehicles and those with a long lead time, as the manufacturer may alter its production schedule or transportation to the UK from abroad may also take longer than originally forecasted. 

Once we have booked a confirmed delivery date with the supplier, it is unlikely to change unless there are exceptional circumstances, so if you can keep your current vehicle until as close to the delivery date as possible or even until after delivery you will have the best safety net.  If that is not possible, in certain circumstances, we may be able to provide an interim vehicle but that will be at your own cost and not part of the salary sacrifice scheme, so will not benefit from any tax savings.

 

How long does it take from placing my order to delivery of my salary sacrifice vehicle?

The lead time for your salary sacrifice vehicle will depend on lead time from the manufacturer, which can vary from a few weeks to over 12 months.  An estimated delivery date will be provided to you before you place your order for your new car and then we will keep in touch with you if there are any manufacturer changes to this, and so you know when to expect it if you need to make arrangements to accommodate your new vehicle.  We will also let you know when your vehicle arrives in stock and provide you with some options for delivery dates.

 

 

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Salary sacrifice costs

 

What is the net cost to me?

The net cost of the vehicle salary sacrifice will depend on your individual circumstances and your chosen car.  This information will be provided to you when you look at options around your choice of car, so you will always be able to make an informed decision.  The most cost-effective route currently is to consider a fully electric vehicle on salary sacrifice due to the low benefit-in-kind tax payable – currently 2% until tax year 24/25.

 

Will quotations change over time?

Quotes from our Salary Sacrifice team at Synergy are usually valid for the calendar month, however prices are altered by both manufacturers and finance providers on a regular basis.  This is because stock deals sell out, discounts alter and the predicted residual value of the vehicle at the end of the contract may be amended by our funders which affects the cost of the vehicle.  Rest assured, Synergy have access to a range of finance providers and long-term, direct manufacturer relationships so we can offer a range of solutions for your individual vehicle.

 

How long is the quote valid for?

Quotes are usually valid for the calendar month, and expire on the last day of the month, after which the quote will be re-run.  However, please be mindful that prices can change at any time for reasons outside of our control (e.g., stock sold out, finance provider changes or manufacturer price changes).

 

How does the amount of miles driven affect the cost?

The higher the mileage, the higher the monthly cost.  This is because the car will be worth less at the end of the contract if more miles have been driven than a lower mileage car, and it also covers the cost of the more frequent servicing and wear and tear on the tyres.

It’s important to try and provide an accurate annual mileage amount for your salary sacrifice vehicle.   This is because if you drive less than your agreement, there will be no refund due.  However, if you go over your agreed mileage, there will be an excess mileage charge to pay. 

 

How much deposit do I need to pay?

There is no upfront payment or deposit required for the salary sacrifice scheme. It is just one regular monthly deduction for your vehicle.

 

Is insurance included in the salary sacrifice scheme?

This will depend how your company has set up the scheme, and this will be clearly communicated to you before you place your order. Most employers will include car insurance within their scheme for which the costs will be included in your monthly sacrificed salary. It is a condition of the contract hire agreement and the salary sacrifice agreement that your vehicle is insured. You must also hold a valid driving licence.

 

Are there any costs which I have to pay?

It’s worth reviewing our Fair Wear and Tear Guide before you take out your contract and also at about 9 months prior to the end of the contract.  This gives you plenty of time to check your servicing is up to date, there are no warning lights on the vehicle and your tyres are all legal tread before you hand your vehicle back.

Any damage to the vehicle outside of the fair wear and tear guide will be chargeable if it has not been repaired prior to handing back the vehicle.  The most common lease repairs are scratches on the paintwork, dents or chips on the bodywork, burns, rips or tears in upholstery or carpets and damage to the wheels.

As stated above, any excess mileage charges which are over the contractual mileage and any increases in road tax at the rate set for your vehicle will also be chargeable.

You will also be charged for any motoring fines incurred such as parking fines and speeding fines, which may also include an administration fee as the leasing company will process the fine on your behalf.  It is likely the charge will be recovered by your employer from your net salary.

 

Will participating in a salary sacrifice scheme affect my ability to get finance?

There is no credit check for opting for a salary sacrifice vehicle, as the contract rests with your employer on your behalf. However, your taxable gross salary will be reduced, so you may wish to ask your employer for a letter confirming your notional salary, which includes the value of your salary sacrifice payments.

 

Could I get a similar deal by visiting my local franchised dealership?

No, a salary sacrifice arrangement, along with the fleet discounts, are only available through your employer.  This is because the monthly rental costs for the vehicle are deducted from your gross salary, offering significant savings on national insurance contributions and income tax.

 

Once I have chosen a vehicle is my salary sacrifice guaranteed for the term of the contract?

Once your vehicle is delivered to you, the salary sacrifice amount will remain consistent for the term of the contract, unless there are any exceptional circumstances. For example, if the rate of VAT changes or the cost of the road tax increases, there may be slight adjustments to your monthly amount.

 

Does the salary sacrifice scheme affect my working tax credits or other benefits?

We suggest you contact HMRC to check if participating in the salary sacrifice scheme would affect your individual circumstances.  Your salary cannot go below the national minimum wage with any salary sacrifice reductions.

 

Does salary sacrifice affect my student loan repayments?

As your gross salary is reduced if you participate in salary sacrifice scheme, your student loan payments are likely to reduce.  However, this may mean that your student loan takes longer to pay back.

 

 

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Salary sacrifice eligibility

 

Who is eligible to join the salary sacrifice car scheme?

You must have a full UK driving licence registered to your current address and be at least 18 years old.  Some employers may stipulate additional criteria such as over 25 years old (for insurance purposes) and length of service, for example been employed with the company for at least 12 months before you are eligible.   If you have an international driving licence, please let us know so we can check it will be accepted by our finance providers.

Once in the scheme, and you remain with your employer, you are committed to the length of your chosen contract.  You cannot exit the salary sacrifice scheme without incurring early termination charges. 

You should ensure you can comfortably afford your monthly salary sacrifice deductions for the period of your chosen term. 

Your salary sacrifice amount must not take your gross pay below the national minimum wage.

 

Do I have to be in full-time employment to be eligible for my company’s salary sacrifice scheme?

You do not have to be in full-time employment; however you must be employed by your company and meet their eligibility criteria.  Any amount sacrificed must not let your salary fall below the national minimum wage.

 

I am on a fixed-term contract - can I participate in the Car Salary Sacrifice Scheme?

If you are on a fixed-term contract with your employer, you may be able to join the salary sacrifice scheme if the contract hire agreement ends before your employment contract ends, depending on your employer's eligibility requirements.  The salary sacrifice scheme has a minimum of a 2-year contract.

 

 

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Benefit-in-kind tax for salary sacrifice cars

 

What is a benefit-in-kind (BIK)?

A benefit-in-kind tax (BIK) is a non-cash benefit given to you by your employer, however it has a monetary value, so tax is due on it.  A salary sacrifice car is treated as a company car for tax purposes.   The benefit value is calculated by a percentage of the CO2 emissions and the list price of the vehicle.  Electric vehicles and hybrids with 75g/km of CO2 are eligible for salary sacrifice and they have the lowest effective tax rates currently.

 

Will my benefit-in-kind charge change in the future?

The government is using the low CO2 emissions of fully electric and hybrid vehicles to encourage company car drivers and salary sacrifice car drivers to move away from petrol and diesel cars to help meet their net-zero targets and the transition to electric.  The current benefit-in-kind tax rates are set to tax year 24/25.  It’s likely that these rates will gradually increase over time as more and more people in the UK transition to electric vehicles.

 

Will the amount I pay increase if the company car tax percentage is increased?

If the company car tax rate changes, either increases or decreases, the tax payable will also change in line with the tax year.  The benefit-in-kind (BIK) payable will be reflected in your tax code. 

 

How will I pay the benefit-in-kind tax?

Your employer will inform HMRC when you take delivery of a car, and your tax code will change so that the benefit-in-kind tax can be collected monthly from your salary.  However, it’s always worth contacting HMRC yourself to let them know you have a company car so that your tax code is accurate, and you can avoid any under or over payments later on.  Have to hand your national insurance number, vehicle description, P11d value and the CO2 g/km emissions. You can do this online through the Government Gateway website and access your personal tax account. 

 

Do I pay company car tax?

By participating in your company’s salary sacrifice scheme, you will be liable for company car tax as the vehicle is classed as a benefit-in-kind.  The amount of benefit-in-kind tax payable depends on the list price of the car, its CO2 emissions and your personal tax rate. 

Pure electric vehicles and hybrid vehicles with less than 75g/km of CO2 are eligible for the salary sacrifice scheme, work so well as the low benefit-in-kind tax helps to achieve an overall net saving.

 

 

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Maintaining, servicing and roadside assistance

 

Are servicing, repairs and breakdown included?

Your salary sacrifice car will come with a maintenance package which covers all routine servicing, as well as breakdown cover for roadside assistance.  Tyres are covered for wear and tear (exact tyre cover is dependent on the maintenance package provided for your choice of vehicle, and will be confirmed by your account manager prior to order).   The vehicle will also come with roadside assistance for the duration of the agreement and will benefit from the manufacturer’s standard warranty.

 

What if the car is damaged?

If your salary sacrifice vehicle is damaged, it must be repaired either through your car insurance or at your own cost through a reputable repairer.  You can check what damage is acceptable in the British Vehicle Rental & Leasing Association (BVRLA) Fair Wear and Tear Guidelines.

 

Is road tax (Vehicle Excise Duty - VED) included?

Road tax is included within the monthly costs for the salary sacrifice vehicle, and will automatically be renewed.  If the road tax costs are increased by the government for your vehicle, then it may be that these costs are passed on to you and the monthly payments adjusted to cover the increase. You can check that your vehicle has up to date road tax at www.gov.uk/check-vehicle-tax

 

How do I arrange the servicing of the salary sacrifice vehicle?

Your salary sacrifice car comes with a servicing and maintenance plan.  The vehicle must be serviced in line with manufacturer’s guidelines, and it is the employee’s responsibility to book the vehicle into an approved garage when a service is shown to be due on the vehicle.  There are no additional costs for servicing, as it is included in the cost of the monthly payments.  Services can be organised by phoning a central driver helpline, the number of which will be provided to you when your car is delivered.

 

How do I replace the tyres on my salary sacrifice vehicle?

You will be provided with a list of approved tyres centres where you can take your salary sacrifice car.  You can also call your driver helpline number, and they will advise you of the nearest centre for you to take your vehicle.  You should check what your specific maintenance package covers regarding tyres, as individual plans vary slightly dependent on the finance provider of the vehicle. However, normal wear and tyre is covered by all providers as a minimum.

 

What number do I call in the event of a breakdown?

Call the driver helpline number provided to you shortly after delivery of your vehicle, and you will be put through to roadside assistance who will be able to assist you in the event of a breakdown.

 

What happens if the car is involved in an accident?

If your salary sacrifice car is involved in an accident, you must inform the insurance company as soon as possible and follow their instructions for dealing with it.  You should also let your employer know.

 

What happens if the salary sacrifice car is written off during the term of the agreement?

The insurance company will deal with this directly with you, your employer and the funder of the vehicle.  The arrangement will cease and you may need to order a new car under the salary sacrifice scheme or make alternative arrangements for your transportation.

 

 

 

For an accurate quote or to rquest a demo of our online portal, please speak with our team today to see how we can help your business and reward your employees.

Contact our Salary Sacrifice Consultants today

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