When leasing a car, one of the first things a driver often wants to know is how long the lease term runs and what the options are at the end of the lease. Just in case you’re not already familiar with salary sacrifice and what it involves, we’ve also provided an initial overview of what salary sacrifice entails.
What is Salary Sacrifice?
Salary sacrifice is normally your cheapest way into driving a brand new electric car. In a salary sacrifice arrangement you agree to exchange a portion of your pre-tax salary for the use of a brand-new lease car.
How Does Salary Sacrifice Work?
You receive an insured and maintained leased electric vehicle in return for a portion of your monthly pay. Depending on the deal and model, salary sacrifice can be between 30-60% cheaper than other finance methods.
By varying the terms and conditions of your employment, you will receive a lower salary but as a result, will save on income tax and national insurance contributions. The difference in take-home pay will be significantly less than the original amount of salary sacrificed.
Top 5 Driver Benefits of Salary Sacrifice
1. Drive a New Car - You’ll have access to a new car every two to four years, usually at a lower cost than other methods of new vehicle provision.
2. No Deposit or Credit Check - Typically, there will be no deposit or credit checks for you and no impact on your personal credit.
3. Tax and NIC Savings - Tax and National Insurance liabilities are reduced as payments are deducted from gross salary resulting in significant savings.
4. Driving Made Easy - All-in-one package for hassle-free motoring with simplified budgeting at a fixed monthly cost, including servicing, maintenance and more.
5. No Usage Restrictions - The car is for personal use rather than as a business company car which means no restrictions on where or when you can drive it, bar any mileage allowance limit.
Top 5 Employer Benefits of Salary Sacrifice
1. Enhance Your Employee Benefits Package - Attract and retain staff by making electric cars more affordable for them through a salary sacrifice scheme.
2. Save Money for Your Business - Set up a salary sacrifice scheme at no cost to your business and pay less in salary and employers’ National Insurance (NI) contributions.
3. Save Money for Your Employees - Employees who sign up will save money by not paying tax and NI on the salary they sacrifice.
4. Reduce Your Company’s Carbon Footprint - There is growing pressure to cut CO2 emissions and one way you can do this is by switching to electric vehicles.
5. Improve Compliance - All of the vehicles will be brand new, helping improve your compliance with health and safety, and duty of care responsibilities.
To find out more about the driver/employee benefits of a salary sacrifice electric car see our dedicated guide here.
To find out more about the employer/business benefits of a salary sacrifice electric car see our dedicated guide here.
How Long is a Salary Sacrifice Agreement?
The leases typically run for 24, 36 or 48 months, allowing you to enjoy the tax efficiencies and various benefits of driving a new electric car during a typical vehicle’s trouble-free years, without the cost outlay normally attached.
Can the Car Lease be Extended?
The car lease can be extended but not past 5 years. You have other options should you wish to continue driving an electric car once the lease has come to an end.
Return the Car
At the end of the lease, you can hand back the car to the leasing company and explore ownership, other methods of financing or leasing again moving forward.
Renew For a New Vehicle
If you’re not quite ready to part ways with your car, you can extend the lease for an agreed period or take out another lease on a similar vehicle.
What Else Happens at the End of the Lease?
End-of-Lease Inspections
As you approach the lease end, there will likely be an end-of-lease inspection to assess the car’s condition. Prepare your car to avoid any unexpected charges. Remove personal belongings, clean the car inside and out, and address any damage in good time.
Wear and Tear
Any damage considered to exceed fair wear and tear will be chargeable. We follow the British Vehicle Rental and Leasing Association (BVRLA) guidelines, and can provide you with a copy in advance, so that if repairs are needed you can decide whether to get them done prior to collection or pay the invoice from your employer.
Excess Mileage
You will be charged for any excess miles beyond the mileage allowance stipulated within your lease contract. This will also be charged through your employer at the end of the contract.
Are there any Eligibilty Requirements for Drivers?
Employees will need to be over 18 years of age to qualify for vehicle insurance and therefore will also need to be over 18 be able to participate. The scheme is open to full-time and part-time employees who satisfy the National Minimum Wage (NMW) threshold after the salary deduction has been calculated.