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Car and salary sacrifice

Are my calculations correct?

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Hi All. A client has asked for some help on a salary sacrifice calc and it is not something I come across that often and was wondering if my understanding is correct: 

A client wants to provide a car (or an employee has requested it) via an Optional Remuneration Arrangement (salary sacrifice). 

The monthly cost on lease is £840 including VAT

Cost of the car is £75,785 (this includes a discount on list price)  and has an official CO2 figure of 69g/km.

So my understanding is as follows:

Employee sacrifices £840 per month thus reducing his taxable income by £10,800 per annum and reducing his tax (at 40%) by £4,032. No effect on employee NI as he earns more than £60,000 p.a. plus bonus. 

At the end of the year, the car needs to be included on a p11d. Value of the car is £75,785 and the BIK rate is 18% (2020/21) therefore the value of the benefit is £13,641 (greater of the sacrifice amount and BIK). Tax at 40% on this benefit is £5,456.40.

Therefore the employee is £1,424 worse off rather than if he took the salary and bought it himself. 

The employer is better of as he doesn’t have to pay 13.8% NI on the £10,800?

Is my understanding correct?

Thanks in advance.

Replies (3)

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By paul.benny
27th Jan 2020 13:34

You've not considered insurance, maintenance, road fund licence, any end of lease charges (some may be included in the monthly lease payments).

If the employer separately funds these without also adjusting the salary reduction, it may tip the balance slightly differently.

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By Mr_awol
27th Jan 2020 14:03

No, your calculations aren't correct.

As Paul says, you need to consider other motoring costs.

You may also need to consider the effect of partial VAT recovery (leasing and some other expenses), Class 1A NIC, and whether e'ees NIC really is irrelevant in these calculations as you state it is. Also, will there be any effect on pensions?

Then you might want to reassess your P11D value, which your post appears to suggest is based on a discounted purchase price, rather than actual list price.

there are a couple of other things I'd look at if I were you but they may or may not be relevant to your case.

Thanks (1)
By gillybean04
27th Jan 2020 23:27

exceljockey wrote:

Therefore the employee is £1,424 worse off rather than if he took the salary and bought it himself. 

Well no, because in the former situation he'll have a car.

Put it this way, could he lease & maintain the same vehicle for less than £120 per month?

NB: If there is a list price then value is list price + accessories.

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