Salary sacrifice Advice Appreciated

[spdpsba]

As others have said, gross cost of company car leases tend to be much higher than personal leases. Lots of reasons given, but there’s also a cost associated with (the risk of) early termination as employers don’t want to carry on paying for your company car if you decide to leave them.

The comparison also only really works on lease v salary sacrifice. My last car which I bought used from Tesla went up in value by nearly 4k when I traded it in, and my current MY is almost certainly worth more than I paid for it. That’s unusual for sure, not everyone can buy the car outright, but residuals are bonkers on all cars at the moment but it’s not been reflected in the lease prices.

People who do highish company miles can also be stung. A salary sacrifice is just a way to fund a company car. It’s a company car so a small BIK charge applies, but the potential kill is the approved mileage rate for fuel which is 5p. It does depend on expenses policies, but on 10k miles it could be the difference between £500 (5p a mile) and £4500 (45p a mile) in tax free payments to the employee towards fuel and running costs. As an employer, you might quite like not paying that extra £4k. I say it depends on expenses policies because some stick to government rates while others, especially those who own the company, claim actual charging costs etc, but as an employee it’s something to check. I had my first Tesla back in 2015 and at that time the approved rate was 0p a mile, I couldn’t claim anything off my employer, thankfully free supercharging saved that one.

So my tips would be..if they’re not stating the obvious:

Work out the total cost for the car you’d run outside the company car scheme including how funded, insurance, tyres, depreciation, fuel although that might be the same if you’re just comparing a company Tesla to a privately owned one, and deduct company mileage payments if you do many company miles.

Do the same for the company car and work out net cost after tax savings, but be mindful of other consequential changes like pension, death in service benefits etc.

See if the difference makes it worth doing. It’s not a given that it will be in all cases.

All of them are good points.

I haven’t done any methodical analysis but back of the envelope calculation and man maths make me think the NHS SS isn’t cost effective - I have more exposure to this than the other SS.

Even if we get £4500 in tax free payments towards mileage (average of 10000miles) it will add up to £13500 for 3 years as savings. Personal lease for a 3 year will cost around £18000. NHS lease will cost around £12500, so there is a £5500 difference + 13500 = £19000 as potential saving if we go for it.

But when you calculate the real loss in pension NHS SS will calculate around 750 monthly as the lease cost (before tax deduction, so the lease cost after tax will be around 350-400 = £12500) and it will work out £9000/year and £27000 for 3 years. If you are a high rate tax payer and losing £9000 from gross will reduce your pension pot atleast around £2000/year (including employer contribution) and in 3 years you lose £6000. Now the NHS pension is calculated based on average of all the remaining years (not like the previous ones after change int he law). So this loss of minimum £6000 will have a negative impact throughout the rest of the period. I think the worst bit is if you do it just for 3 years may be you will gain £10000 or something based on my rough calculation but people do not stop with that they go for lease cars every 3 years and that will have a terrible impact as we do not calculate what the £10000 can buy in 20 years time instead of investing in pensions. But if you are prudent and also invest extra in some private pensions then you can make a good amount of money using SS.

But not sure people really do that.

 

[WannabeOwner]

If you are a high rate tax payer

Isn't it likely that you would be at max pension by retirement age anyway ? So maybe it won't matter for someone in that bracket ... seems that tax pension pot limit is what is causing 50-somethings, having spent a lifetime acquiring skill that the nation could put to very good use, to decide that it just isn't worth their while to put in any more hours than they need in order to pay the bills ... 'coz there is no upside for Pension.

 

[ACarneiro]

Isn't it likely that you would be at max pension by retirement age anyway ? So maybe it won't matter for someone in that bracket ... seems that tax pension pot limit is what is causing 50-somethings, having spent a lifetime acquiring skill that the nation could put to very good use, to decide that it just isn't worth their while to put in any more hours than they need in order to pay the bills ... 'coz there is no upside for Pension.

It's not just that there is no upside for pension, it's that it becomes punitive from a taxation point of view and many people are either cutting hours down or downright retiring to avoid being stung by huge tax bills.
It all seems a tad bonkers, but nothing surprises me anymore.

 

[Filbert1884]

It depends on the fine print of the scheme. But in a nutshell, you pay the business lease price as per sites such as leaseloco and cars2buy (my employer's scheme doesn't restrict which broker/lease company we can get the car from), search for 1 month upfront + lease term and mileage.

Let's just say you find a car that's 750 Inc VAT. That 750 is taken from your salary BEFORE tax. So in real terms the cost to you is approximately 750-40%= 450/month (assuming you are a higher rate tax payer). That's because had you earned that 750, then you'd have received 450 after tax. But as you've sacrificed that amount, you end up with 450 less per month in your bank account.

Hope that helps.

 

[BongoFury]

Interesting thread, I have just gone down the salary sacrifice scheme with Octopus on a RWD Model 3 with 18000 miles per year allowance for 4 years. I have a daily 100 mile commute (50 each way, mostly motorway) and can charge at work on a trickle charger. I have been running a Seat Ateca 1.0l for the last 4 years paying around £225 a month on PCP and fuel costs per month of around £400 (its obviously gone up a lot at the moment). I created a spreadsheet to look at a whole host of electric cars (I had a Leaf on order in early March 2020 but cancelled it as soon as we were locked down) and calculated that my monthly total cost of ownership (servicing, mortgage) for the Ateca was £692. In comparison the Tesla was £640 per month with no deposit (including a wall box installed, insurance, servicing, 4 new tyres per year, and including 1500 miles per month of home charging on my current rate) so I am saving £52 per month vs my old car plus I can hopefully get around 60 miles of free charging per day at work (until they install a 7.2kw charger) that will reduce the costs a little bit more. If i really wanted to save loads of money a MGZS long range would have saved me over £200 per month vs the Seat on the same scheme!

Hope that sheds some light on how I think I will have benefited from the scheme.

 

[Harrow Y]

My sincere Thanks to all! Apologies have been travelling so delayed vote of Thanks!

After careful consideration I have opted for salary sacrifice. Fortunately my employer will take my pension , bonus etc at gross value so no impact there at all.

Have calculated salary sacrifice savings V/S personal lease and with everything being included it’s a Great benefit to have.

Although my EDD is now 2023 , I do have a car package which makes sense.

Thank you!

 

[Spacerat]

Your employer can ask to opt out of the inclusive insurance - mine have, and it drops the monthly cost of the MY by about £200 (private insurance about £650 p.a. so Nett saving about £100p.c.m.)

The salsac cost also includes an insurance premium to cover the cost of early vehicle returns.

Salsac even more attractive for those in higher tax bands and tax regimes (Scotland for example).

 

[littlelola1983]

Exact same thing happened to me... I ordered, now my company is about to go live with Octopus Salary Sacrifice scheme.

Cant tell you exact saving until the thing is live hopefully next week, but the Octopus rep said they had a good relationship with Tesla and they only require your RN number to transfer the order without losing your place in the queue. Tesla also confirmed this on the web chat.

Correct.