EV Cars: How does salary sacrifice work?
From lease deals to finance, knowing the different options available to you can be complicated and time-consuming. When it comes to buying a car, lots of people are talking about salary sacrifice schemes and how they help you to afford brand new electric vehicles but are they any good?
In this article, we are going to explore what a salary sacrifice scheme is.
We will also look at how it works and the benefits that come with it.
What is salary sacrifice?
A salary sacrifice scheme is an agreement between you and your employer. It is a way of buying a car using some of your pre-tax salaries. The amount of money you can sacrifice from your salary depends on how much you earn but most schemes allow you to give up around £250 per month.
The money you sacrifice is then taken from your salary before tax and National Insurance contributions are calculated. This means that you will pay less tax and NICs on the money you use to buy the car.
How does it work?
You may be asking, how does salary sacrifice work? The way a salary sacrifice scheme works is that you agree to give up a certain amount of your salary each month. This money is then used to fund the purchase of a new car.
The advantages of this scheme are that you will pay less tax and National Insurance on the money you use to buy the car. In addition, the monthly payments for the car will be taken from your salary before tax, and NICs are deducted.
The car you purchase through a salary sacrifice scheme will be owned by your employer. However, you will be able to use the car for private use.
At the end of the agreement, you will have the option to buy the car from your employer or return the car and start a new agreement with a different car.
What are the benefits?
There are a number of benefits that come with using a salary sacrifice scheme to buy a car.
Firstly, you will pay less tax and NICs on the money you use to purchase the car. This is because the money is taken from your salary before tax and NICs are deducted.
Secondly, the monthly payments for the car will be taken from your salary before tax, and NICs are deducted. This means that you will have more money available to spend each month.
Thirdly, you will have the option to buy the car at the end of the agreement. This means that you can keep the car if you want to and if you do not want to keep the car, you can return it and start a new agreement with a different car.
What are the disadvantages?
There are a few disadvantages that you should be aware of before you decide to use a salary sacrifice scheme to buy a car.
Firstly, you will be limited to the amount of money you can sacrifice from your salary. The amount you can give up will depend on how much you earn but most schemes allow you to give up around £250 per month.
Secondly, the car you purchase through a salary sacrifice scheme will be owned by your employer. This means that if you decide to return the car at the end of the agreement, your employer will be the one who decides what to do with the car.
Thirdly, you may have to pay a higher rate of interest on the money you borrow to buy the car. This is because the loan will be taken out in your name and not in your employer’s name.
Before you decide to use a salary sacrifice scheme to buy a car, it is important that you weigh up the pros and cons. This will help you to decide whether or not the scheme is right for you.
