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How salary sacrifice schemes can work for SMEs

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2 April 2014

SALARY sacrifice.

This is a term that many SMEs know but that’s as far as it goes.

However, salary sacrifice could save both you  as an employer and your staff that take up the scheme a chunk of money each year.

If you want to offer a valuable perk to your employees and encourage a cost effective and environmentally friendly company car policy, salary sacrifice could well be worth investigating.

 

How does salary sacrifice work?

In simple terms, when a salary sacrifice scheme is introduced, your employee gives up a portion of gross salary in return for a fully-maintained company car.

It’s particularly useful if you have staff who are not entitled to a company car but you want to offer them the benefit

It’s particularly useful if you have staff who are not entitled to a company car but you want to offer them the benefit as part of your staff retention scheme.

Your employee will no longer pay income tax or National Insurance on the portion of the salary sacrificed, but they will be liable to company car tax. So low CO2 emission cars work best in this regard.

What about you as the employer? Well, apart from providing improved benefits for working at SME business, you no longer have to pay the National Insurance on the amount of salary sacrificed, although there will be Class 1A National Insurance on the car benefit.

“Although large organisations were the first to take up the scheme, more and more small-to-medium sized businesses are realising the benefits that the scheme could bring for both themselves and their employees,” commented Andy Leech, managing director of Fleet Evolution, which specialises in offering salary sacrifice schemes to SMEs.

“Usually around 10% of employees enroll in the first year the scheme is introduced. We tend to find it’s younger staff who are keenest to sign up. Salary sacrifice offers more junior members the chance to run a reliable and economical new vehicle that otherwise may be out of reach for them.

 

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Matt Morton

Matt Morton

Matt Morton is an automotive content writer for Business Car Manager

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