It looks like they already changed the rules back in 2017 (before then any car qualified for the full tax relief but since then only ULEVs do, however the tax relief was carried through to 2021 for people already doing it so I would hope if the rules changed again it would also not affect people already on a scheme...
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IanB
Member
Maybe, but I am actually in the situation (on an AVC salary sacrifice). I am several hundred pounds below my tax threshold after the sacrifice, but I still benefit a bit at the margin by saving NI at 11% or whatever. My net is still above minimum wage which is the issue. Anyway, just one more payment and I retire, but it also works for cars and I recommend people look at it seriously.
That's a kind way to describe what Boris is likely to do to the country.What worries me is Borris could change lots of things
What worries me is Borris could change lots of things
I'm worried stiff that the country is going to be run by people who prefer vague concepts like pride over detail.
The one upside of Brexit may be the removal of the US Import Tariff on cars; however I'll have to balance this against worries about career wages etc.
This is what I am hoping for too. The boss and I have started a discussion with the business accountant but not got to the details. Every website I read is all about leasing, but I want to own the car at the end of the term rather than hand it back
The EMPLOYER will end up owning the car at the end (unless they leased it, in which the leasing company ends up owning it). The amount of salary that you sacrafice should be equal to that year's depreciation + running costs (unless the employer is being generous/mean; maybe they average it over 3 years or something).
Advantage of leasing is that this is transparent: the lease company gives an annual cost of the car, you sacrifice exactly that amount of salary and it's break-even for the company, while you get to pay much less tax than if you'd bought the car with a loan, paid down the loan out of your salary, maintained it out of your salary, then sold it after a few years.
If the employer does buy it rather than leasing, then there's nothing to stop you doing a deal with your employer to buy it at fair market value after a couple of years, once they've absorbed the heavy depreciation of the early years and the tax rates start going up again.
If you are in a very small company that's willing to adjust their affairs to suit you and can live with a handshake agreement to sort out the unexpected cases, then it's excellent and you can do what you want. Likewise in a large company that already runs company cars for some staff it's easy for them to add on a salary sacrifice for people where company car previously didn't make sense. More tricky is the sort of medium size company that's worried about extra overheads doing something for just one member of staff, what if everybody wants it, what if you leave etc. Actually making enforcable contracts for what you'd cover on a handshake at a micro company is probably a legal minefield, while getting stuck with a left-over vehicle is much more of a worry to them than at a large company that has a big turnover on its fleet.
Thank you @arg, very informative. I'm in a position in a small company where it will mainly be on a handshake but I'd rather put things on paper so that we both know where we stand. Hopefully this will negate any issues if something unexpected happens.
Would you think the company be able to sell it to me at the end of the HP term for a small nominal fee? I would have in effect paid for the whole car from salary sacrifice therefore, they it is their asset worth say £15k?
Would you think the company be able to sell it to me at the end of the HP term for a small nominal fee? I would have in effect paid for the whole car from salary sacrifice therefore, they it is their asset worth say £15k?
Thanks, I remember getting a bike through the bike to work scheme which is salary sacrifice as well and you are correct that the company still owned it and I needed to pay a nominal amount for ownership of the bike at the end of term. Used to be 5% but now there are detailed set amounts for bikes with HMRC, is there the same for cars?
From a tax perspective you MUST pay “fair market value” else you owe tax on the difference between what you paid and FMV. As ever, you can choose how close to the wind you wish to sail- I’d get a couple of quotes (eg WeBuyAnyCar, trade-in quote from Tesla) and keep them on file in case challenged; some people will pluck a (low) value out of the air and hope they never have to justify it.
Normally this is fair - you have only been sacrificing enough to cover the depreciation and running cost (which lines up with a lease payment and not owning anything at the end if you go that way: hence the popularity of leasing for company cars).
Traditionally, if the company buys the car they’ve put up some capital at the start or made HP payments bigger than your sacrifice amount, resulting in an asset on their balance sheet that it’s reasonable to make you pay for if you want to keep it.
If you’ve paid the whole amount of the HP in your sacrifice then you have paid too much and they owe you something back. But maybe they want you to do that so this arrangement isn’t tying up any capital. One possible way out of this is to agree that on terminating the company car arrangement they pay you a (taxable) bonus equal to the amount that you overpaid. Get the timing right and that after-tax amount gives you enough to buy the car at fair market value and the whole arrangement is completely neutral for the company and beneficial to you.
The 0% BIK rate doesn’t mean that you can get the whole car tax-free: each year you are being taxed on the depreciation/maintenance/insurance for that year. But paying 0% in that first year with the big depreciation is a good deal!
Very fair point. However, taking £20k off them over 3 years seems a bit steep!
I think the point is that the details of the amount of sacrifice is between you and the employer and doesn’t impact the tax position (for EVs that are exempted from the new provisions to stop you gaining advantage).
Thank you @arg for your detailed and very informative reply.
Jus thought I would outline my 'plan'. I had initially wanted to buy an M3 and happened to mention it to my boss and he asked if there was a way that he could help. I mentioned that there is a salary sacrifice scheme thing which might be worth looking into. I have always intended to own it outright as I am generally pushing my finances in the first place, so after 5years of HP I would have little running costs (I spend around £350-£400 in fuel each month). Instead of spending on fuel I am spending on depreciation.
My idea was that company buys car on 60 month HP (say through Tesla Website) for £828 (LR, White, Tow) and sacrifice £828 from my salary with the minimum deposit from my own cash plus BIK. I am assuming that because its a 'company car' that the company is responsible for the insurance which I would pay for myself through the salary sacrifice again?
So at the end, if I have been paying the full HP amount (£828 as above example), and after 60 months the car becomes the companies but been paid for in full by myself, thus a simple transfer of ownership to me would then render it mine?
Sorry for the questions, I just find very little information out there for someone wanting to buy outright through salary sacrifice and work in a small company. If I had to do all this privately I would have to go the SR+ option which can put me in occasional tricky spots with long commute/child run and unforeseen busy business mileage.
Jus thought I would outline my 'plan'. I had initially wanted to buy an M3 and happened to mention it to my boss and he asked if there was a way that he could help. I mentioned that there is a salary sacrifice scheme thing which might be worth looking into. I have always intended to own it outright as I am generally pushing my finances in the first place, so after 5years of HP I would have little running costs (I spend around £350-£400 in fuel each month). Instead of spending on fuel I am spending on depreciation.
My idea was that company buys car on 60 month HP (say through Tesla Website) for £828 (LR, White, Tow) and sacrifice £828 from my salary with the minimum deposit from my own cash plus BIK. I am assuming that because its a 'company car' that the company is responsible for the insurance which I would pay for myself through the salary sacrifice again?
So at the end, if I have been paying the full HP amount (£828 as above example), and after 60 months the car becomes the companies but been paid for in full by myself, thus a simple transfer of ownership to me would then render it mine?
Sorry for the questions, I just find very little information out there for someone wanting to buy outright through salary sacrifice and work in a small company. If I had to do all this privately I would have to go the SR+ option which can put me in occasional tricky spots with long commute/child run and unforeseen busy business mileage.
Unfortunately, it doesn't work quite like that (though you may be able to come to an agreement close enough to make you both happy).
I think part of what's causing you confusion here is that you are focused on "salary sacrifice" as a thing that's bringing you advantages. In fact, it's just a label to describe something you could have done all along, and in fact tying the label onto it is disadvantageous - HMRC view it as tax avoidance and have recently acted to stop people taking advantage of explicit salary sacrifice schemes, though fortunately ULEV company cars are exempt. The thing that's giving you the advantage here is that you are running a company car rather than a private car, and salary sacrifice is a way of organizing to do that in a way that's transparent - particularly where there are several employees notionally on the "same" pay grade and not all of them want cars.
Fundamentally, you are negotiating your pay/benefits package with your employer, and you now want them to provide you a company car. They have now offered you a salary of £X plus the use of a company Tesla; the fact that they might otherwise have offered you £Y without the car is not directly connected - maybe they are like @ringi and don't like providing company cars unless there's a profit in it for them, maybe they are keen to have a green image and want to subsidise a carpark full of Teslas. The difference between £X and £Y has to be something in the region of the cost to the company of providing it - since otherwise either you or the company would consider it a bad deal and not accept it - but the exact number is a matter of negotiation.
If you have a company car, then it is by definition the company's car. They are responsible for insuring it (which might not be exactly the same cost as if you were insuring your own car), they are responsible for maintenance (which can't be precisely predicted - how many flat tyres are you going to get?), so there's no really precise right answer.
Because it is the company's car, the only way for you to end up owning it is if they sell it to you. And if they sell it to you below market value, then you are owing tax on the difference - just like any other thing of value that they might give you. If they decided to give you no salary but a free gold bar, that would obviously be tax avoidance, so it is with giving you a free (or reduced price) car.
Your problem is that you want to avoid any impact on the company's cash flow by paying (sacrificing) more than the true cost of providing the car, while the company is gradually gaining an asset on their balance sheet, then you are expecting them to give that back to you by giving you a free car at the end of it. So what you are actually proposing to do here is give the company a loan. Whether or not they really need or want this I have no idea.
In theory you could actually document it as such - you reduce your pre-tax salary by £X, then after tax take a further £Y that you loan to them, such that £X+£Y adds up to the HP payment; then at the end they pay you back the loan in cash and that gives you enough cash to buy the car off them for fair market value. But this is so complicated I doubt any sensible company would want to go for it.
Much more of a problem for them is likely to be the risk that you cease to be an employee or something else goes wrong before the end of the 5 years. They can (probably) sell the car and pay off the HP, but likely to lose money doing so in the early years.
I think much more realistic is to be sacrificing a bit more than the car is worth (but still a little less than HP+insurance+maintenance) so that the company is making a bit of a profit on it overall to compensate them for the minor cash-flow impact and the risk element. If you really want to own the car at the end, put by a bit extra in a savings account so you can afford to buy it from them.
Note also that there is provision in the company car rules for an employee capital contribution to the cost of the car, but this is all about reducing the BIK amount so is not helpful here.
Caveat: all the above is not professional advice, I hope it is accurate enough to guide your thinking but you should not trust it.
Russinating
M3 SR+
I'm surprised nobody yet has mentioned the 100% FYA. It's a massive incentive for businesses or business owners to operate an EV.
Take the Model 3 for example; purchasing one through a business (cash or PCP) will save that business £7,503.10 in corporation tax on the base model.
The total charge for credit for a PCP with Black Horse over 48 months is £4,462.68 (4.8%) so it more than covers that. Combined with a salary sacrifice with its NI savings and the zero/low BIK it's a no-brainer all round; you don't even need to worry about cashflow.
Although I totally disagree with the above poster about only providing something to employees if you can make a profit off it (I'm glad none of my team work for them), there would actually be a difference of over £3,000 plus variable NI.
Take the Model 3 for example; purchasing one through a business (cash or PCP) will save that business £7,503.10 in corporation tax on the base model.
The total charge for credit for a PCP with Black Horse over 48 months is £4,462.68 (4.8%) so it more than covers that. Combined with a salary sacrifice with its NI savings and the zero/low BIK it's a no-brainer all round; you don't even need to worry about cashflow.
Although I totally disagree with the above poster about only providing something to employees if you can make a profit off it (I'm glad none of my team work for them), there would actually be a difference of over £3,000 plus variable NI.
Agree with this too. Think of the increased employee satisfaction, the perceived greater salary and what a great perk to be able to offer. That’s not even starting on the possible knock on effects of PR opportunities with an electric fleet.
Thank you for your detailed response @arg. I have gleaned more from your post than hours and hours (if not days!) of browsing/reading/researching. Its a conversation that I have not been able to get from anyone. I appreciate that this is just your advice rather than professional advice, but all the same it has given me a different perspective and aided me in understanding the situation. Thank you.
We are always intending to go through all this with our accountant but I would rather have the meeting being as informed as possible rather than them giving me a load of information and having to digest and think through on the spot.
We are always intending to go through all this with our accountant but I would rather have the meeting being as informed as possible rather than them giving me a load of information and having to digest and think through on the spot.
I don't normally mention it because it's not as good as it looks, being mainly a cash-flow effect rather than an overall tax saving. However, since the scenario raised by @beansnchips has a cash flow aspect to it, the 100% FYA is certainly relevant and I was remiss in ignoring it.
The reason I say it's not an overall tax saving is that although the 100% FYA lets you offset the whole value of the car against profits at the time you buy it, when the car is eventually sold you then have to account for a profit on selling it, so at the end you have only saved tax on the amount of depreciation. For a non-EV company car you can't claim first year allowances and instead have to put it in an asset pool and take writing-down allowances over a number of years; however, you would still end up recovering most of tax on the depreciation eventually. So in the typical case you end up paying roughly the same amount of tax, but it is delayed by several years. The exact extent of the benefit depends on quite a lot of factors, some unrelated to the car: for a start, the company needs to be actually making a profit in the years in question in order to have any tax to be saved!
However, in the case we are talking about the comparison isn't against a non-EV car, it's against the company not buying any car at all. When it is all over and the car has been sold, they will have reduced their taxable profits by what the car actually cost them to provide - the depreciation. If they hadn't entered into this scheme, they would have instead paid the employee extra salary approximately in the amount of that depreciation - and salary costs also reduce taxable profits, so the total effect on corporation tax at the end is nil. Likewise, we are assuming the employee has also sacrificed salary to cover the insurance/maintenance costs, and those costs are offset against taxable profits, so still no difference in corporation tax by the time it is all over.
The benefit is in timing: assuming they can make use of it, the 100% FYA gives the company a tax saving in the year the car is bought, giving them cash on hand to offset the fact that the employee isn't paying as much in salary sacrifice as the total HP payments on the car. Then in the year the car is sold they will have an extra tax bill, but they will have the cash from selling the car to pay it.
It's unlikely that the numbers will line up perfectly, and the timing won't line up perfectly either (with corporation tax being paid in arrears), but it certainly helps the argument.
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