6 salary sacrifice myths busted

6 salary sacrifice myths busted
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After the Autumn Statement and subsequently the Finance Bill, there have been a number of myths about the impact on salary sacrifice schemes – myths that need busting.

Tusker, the car benefit provider, aims to clear up some of the confusion around the Government changes.

The company’s CEO, David Hosking, says: “There were many rumours about what was going to happen to salary sacrifice before the Autumn Statement and almost all of them turned out to be completely wrong.

“The Government confirmed that employee car schemes can continue as a benefit of employment, and that they will be treated differently to other salary sacrifice benefits.”

He continues: “Now that we have all the facts about the changes we can dispel the false rumours and assist employers in offering what for most, will continue to be the highest valued employee benefit. It’s safe to say that reports of the death of salary sacrifice have been greatly exaggerated.”

Myth 1: “Salary sacrifice schemes, other than those explicitly excluded, have been scrapped by the Government”

This is simply not true, as all that has changed is the tax treatment. A driver taking a car, emitting more than 75g/km CO2, will pay either the Benefit in Kind (BiK) tax on the car or the income tax on the amount of salary being sacrificed if that is the greater amount. The changes come into effect from April 6th 2017 for new agreements and existing ones are protected until April 2021. ULEVs are completely exempt from the changes.

Myth 2: “Prices go up for all employees”

Tusker modelling shows more than half of forecasted 2017 orders would not be affected by the new rules, either because drivers will opt for a ULEV or because the drivers will already be paying more in BiK than the salary being sacrificed.  For the rest, over a quarter will see an average increase of just over £2.44 per month. In the approximately 11% of vehicles where there are larger increases we would expect drivers to simply opt for another car which isn't affected to anywhere near the same degree.

Myth 3: “There are no longer any financial benefits for employees”

There are still huge savings to be made with National Insurance savings, pension savings (where applicable), manufacturer discounts and corporate finance rates. However, cost savings are not the main reason that people choose to drive a brand new car from Tusker.  In a recent Tusker survey, only 3% chose the scheme because of tax savings and 77% chose their car because of the all-inclusive, hassle free package which was great value against other methods of driving a brand new car. 

Myth 4: “There are no longer any National Insurance savings for employees”

This is one of the biggest misconceptions. The truth is that NI for employees is NOT affected by the new rules. The Government has been clear that NI savings remain for all employees.

Myth 5: “It is more expensive for employers to run salary sacrifice schemes”

All Tusker schemes are free to implement, and there is still no financial cost to implement or run a salary sacrifice car scheme. It is true that employers will no longer save money when their employees choose a car on the scheme but it won't cost employers any more than if they had opted for the cash.

Myth 6: “Salary sacrifice will be abolished in 2021 so it’s not a long-term solution”

The 2021 date has caused confusion but this simply refers to when the rules will apply to renewals of existing schemes. The Government has always applied a ‘grandfather clause’ to tax rules in order to maintain the status quo for existing contracts.

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