Step 1: Show Me The Money!
It may seem obvious, but the first thing that you need to know is 'How much will it cost me?'.
That phrase encapsulates:
- The amount of the cash pay reduction.
- How the reduction is calculated.
- What the reduction is meant to cover.
- How your new company car plan will operate and what it does and doesn't include.
If you switch to an electric car salary sacrifice plan you'll have:
- A pay reduction
- Possibly an adjustment to pensionable pay
- Possibly an impact on state benefits entitlements
- A new company car with obligations to look after it
- Tax and national insurance changes to your net pay
One way or another your participation in the plan will need to ensure that any changes to your take-home pay are matched by the benefit of having an electric company car, otherwise you're going to be out of pocket.
However, your employer may not have altered your take-home pay in a straighforward manner to enable you to check the condition of your wallet after swapping to an electric car salary sacrifice plan.
For example, here are some of the adjustments your employer may make to your take-home pay:
- The employer's NIC saving from swapping cash pay for an electric company car
- VAT 'lost' by your employer on the lease rentals for your electric company car
- Corporation tax 'lost' on your company car
- The cash-flow or company balance sheet changes resulting from the swap
And there are derivatives of all the above to consider as well.
That makes it particularly important that you understand and scrutinise the proposed electric car salary sacrifice plan quite carefully.
Fortunately we have a salary sacrifice calculator that will do the hard work for you.
If you need to check your employer's proposed changes to your net take-home pay, or you just want to see how much you would need to give up to get an electric company car, click on this link.
Step 2: Profit or Loss?
There are typically two key reasons for an employer implementing an electric car salary sacrifice plan;
- cost savings compared to providing cash pay; and/or
- improved offerings for recruiting/retaining staff.
However, it would be understandable if all you're really concerned about is whether you will win or lose from an employee electric car salary sacrifice plan.
Now, you could win by your employer offering you a plan that's generous and leaves you financially better off.
Or you could lose because your employer's electric car salary sacrifice plan does neither of the above.
Either way, you need to test the maths to work out whether you win, either from a cost perspective or from getting a new electric company car.
How To Quantify Costs
To do the maths you will need to:
- Estimate the pay adjustment required for you to pay for the electric company car you will get.
- Calculate the tax and national insurance savings on your net pay.
- Identify whether the gross pay you get after the electric car salary sacrifice will infringe the National Mimimum Wage rules.
You can take a short cut through all of this with our salary sacrifice calculator - just remember to check the final results with the National Minimum Wage calculator.
And once you've done the maths, you're ready to start the next phase ....
Step 3: Check The Paperwork
The old adage 'the job's not over 'till the paperwork's done' could not be more apt than when it comes to participating in an electric car salary sacrifice plan.
You will need to read carefully your employer's terms and conditions for the plan, for example:
- What is it intended to do?
- What does it cover?
- Exactly how much pay reduction will you get?
- Is the change pensionable or eligible for overtime or other pay related benefits?
- What are your rights if arrangements leave you out of pocket?
- If you opt in to the plan can you opt out of it?
- What happens if you leave your employment through redundancy or getting a new job?
This list isn't exhaustive, but you get the idea, and a word with your professional advisers/employee representatives, etc, may well be worthwhile.
Irrespective of how your employer will be providing an electric company car, read all contractual documentation (changes to employment terms, company car plan rules, etc) thoroughly - it may be painful, but these are usually legal documents and if you don't understand them you probably shouldn't be signing them.
Pay particular attention to:
- The amount of the reduction in your pay
- The contracted period/mileage for the car
- Any legal obligations for maintaining the car and the scope of fuel reimbursement (if any)
- Penalties for leaving the plan early
- Additional costs or continuing obligations on termination of your employment
- The return condition clauses for vehicles (e.g. penalites or excess mileage/wear and tear charges)
- Exclusions from the motor insurance cover provided by your employer (especially if you want to fit roof racks/towbars etc)
- Items covered/excluded from maintenance and breakdown recovery agreements
Once again our list isn't exhaustive, but you can begin see the degree of detail you need to cover.
Step 4: Into Your Car
So now that you know how the electric car salary sacrifice plan works you can get started on finding a car to meet your needs and your budget.
Our calculator will help you work out which cars are affordable.
If the monthly pay reductions in our calculator don't match those required your employer, ask why - you can also ask your employer to set up a version of the calculator for your company's electric car salary sacrifice plan.
So, now you've chosen your car and you're ready to get motoring.
Not quite yet. This time you're taking delivery of a company car, possibly your first.
You're responsible for it, you've taken a salary reduction to get it and if it goes wrong you'll need to know who's responsible for getting it sorted.
So, when you take delivery of your new electric company car, make sure you:
- Examine the body work - check for pre-delivery damage such as stone chips to the paint or scuffs to the interior, exterior or wheels and tyres.
- Check everything's there - make sure everything you ordered as factory or dealer options has been fitted and double check items such as the toolkit, spare wheel/tyre inflation kit and that you get all the keys.
- Get the delivery driver to show you that everything is working - all equipment, options, lights, in-car entertainment etc - don't accept excuses that the driver needs to get away to the station or to make the next delivery.
- Drive it (and not just to the station to drop off the delivery driver) to make sure there are no obvious defects in the way the car runs.
Don't be afraid to reject the car if there's something wrong or missing - it's your money that your employer has spent on the car.
And remember that delivery is just the beginning.
You're now responsible for ensuring that you comply with your employer's insurance terms, plus requirements for servicing and maintenance, making sure that warranty work is done, that manufacturer recalls are processed and that the car is kept in a roadworthy condition, especially when it's being used on business travel.
And there's one more factor to consider ...
With a company car you pay tax according to the rules for company cars rather than the general rules for cash pay.
Your employer will inform HM Revenue & Customs about the company car and they will adjust your PAYE code to catch the tax due every month through the payroll.
Make sure that these changes are implemented otherwise you could end up with an unexpected tax liability at the end of the tax year.
The next job will depend on whether or not you are using the car for business mileage - if you do then you should get a mileage allowance to cover business travel.
If this is in line with the full rate of HMRC's business mileage allowances; there's nothing more to do.
If not then you'll need to check with HMRC about what you can do about any surplus/deficit.
Step 5: And Out Of It Again
Eventually it will be time to change your car, and this means going through Steps 1-4 again.
Check that the terms of your employer's electric car salary sacrifice plan haven't changed, and get familiar with the changes if they have.
You'll also need to deal with the return process for your car, including:
- Check the service log book has been marked up for all your service history and get any missing stamps in the book.
- If your car will be returned around the 3rd, 4th or later annivesary of the initial registration, ensure you book an MOT test in time to get any defects fixed before the car is returned.
- If your car is still under a manufacturer's or other warranty get the MOT inspection well before the warranty expires to make sure you don't end up paying for repairs out of warranty that would otherwise have been covered, or worse, repairs required which could fail the MOT.
- Get the car checked for damage to the bodywork, wheels, interior or equipment - you may be charged by your employer or their leasing/finance company for returning the vehicle with excessive wear and tear to these items.
If necessary, liaise with the leasing company to have an appraisal before the vehicle is sent back to them, just in case you need to have items repaired first.
Leasing companies often have the right to charge you for any repairs required on the return of a car, even if they don't actually do the work.
And Finally ....
Swapping into an electric car salary sacrifice plan is only the beginning; effectively you're stepping onto a merry-go-round and whilst you're on the ride things elsewhere might have changed.
So, as with any aspect of employment, make sure you keep up-to-date with:
- your electric car salary sacrifice plan rules;
- minimum wage, tax and national insurance rules, espcially the tax rules for company cars;
- employment practice - employers will change their policies and procedures about company cars in response to market behaviour and employment/tax law.
- tax and NIC law on company cars
Remember too that this article is focussed on the key steps involved in participating in an electric car salary sacrifice plan. There's a lot more detail to be covered when you embark on the process, so check all available sources of detailed information and analysis at every stage.
Don't be afraid to ask for help!
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