salary sacrifice schemes

tom26 · 21 Oct 2013 at 11:40

Hi Guys, does anyone currently use a salary sacrifice scheme? My company car is up in 6 months and I have the option of getting a new company car with limited choice of models or opting out and receiving an allowance which I could put towards a salary sacrifice scheme.
If I opt out I'd receive £580 a month before tax on top of my base salary which would put me in the 40% bracket. I've had some quotes on car's I'm interested in and on salary sacrifice I could have a car with net cost of £550 a month after tax savings but with the bik added back on. I'm not sure of the mechanics of how salary sacrifice works... would the £550 come out before tax and therefore bring me back down into the 20% bracket therefore making the cost almost neutral if I were to take this option?
Ideally I'd like a new company car as it's less hassle but the options are limited and with the salary sacrifice I can have the car I want including insurance, maintenance, tyres etc all included.

rossk26 · 21 Oct 2013 at 11:58

Normally salary sacrifice comes out before tax and NI etc. so you save a bit.

But not sure on this situation, surely you'd have to pay some form of tax on the £580 you are being given as a car fund.

[TW]Fox · 21 Oct 2013 at 12:07

The cost of the lease comes out before tax but is replaced by company car tax, therefore it works out tax efficient if you pick a car with sufficiently low company car tax.

You still have to pay tax/NI on the £580, though - and you'll find it hard to get a fully maintained lease on something that isnt crap for whats left over.

rodenal · 21 Oct 2013 at 12:10

I'm a little confused by the setup you're saying is in place tbh. Is it not pretty unusual to have a car allowance and then salary sacrifice?

Benefit in kind is taken off by way of a change in tax code, so will not affect your taxable pay (well it will, but not by changing your top line). Salary sacrifice schemes appear as a credit to pay but on my pay slip at least my gross pay is still shown in top line, I'd imagine, but don't know for sure that your tax band is calc'd on this number

tom26 · 21 Oct 2013 at 12:22

[TW]Fox;25153255 said:
The cost of the lease comes out before tax but is replaced by company car tax, therefore it works out tax efficient if you pick a car with sufficiently low company car tax.

You still have to pay tax/NI on the £580, though - and you'll find it hard to get a fully maintained lease on something that isnt crap for whats left over.

If the £550 net cost of the lease is coming out before tax though surely the net gain on my salary from the £580 allowance is effectively only +£30 a month and this is what I'd get the taxed on and not the full £580 as the majority of this will already have come off my salary for the lease?