Check salary sacrifice impact after Autumn Statement

author: FutureCar Staff    

Businesses that offer employees access to a company car through salary sacrifice are being advised to assess the impact of changes announced in the Autumn Statement. In addition to the reduction in national insurance contributions (NICs), Chancellor Jeremy Hunt confirmed that the national living wage will increase by 9.8% to £11.44 per hour. This new rate, which will take effect in April, will also be extended to 21 and 22-year-olds for the first time.

Caroline Sandall-Mansergh, consultancy and channels development manager at Alphabet GB, emphasized the importance of recognizing the effect of the national living wage increase on salary sacrifice schemes. As the national living wage rises, the threshold for salary sacrifice eligibility also rises, potentially resulting in lower-earning employees being excluded from the benefit. Sandall-Mansergh advised fleet managers to review their existing schemes and seek expert guidance to ensure that employees' access to benefits, such as company vehicles, can be maintained without significant disruption.

Alfonso Martinez, UK managing director of Ald Automotive LeasePlan (soon to be Ayvens), also highlighted the impact of the Autumn Statement on salary sacrifice. He stated that the increase in the living wage and the reduction in employee national insurance contributions will be welcomed by households, but these changes inadvertently affect salary sacrifice schemes that are making electric vehicles more accessible to drivers.

Salary sacrifice allows drivers to lease vehicles through their employer and pay for them with pre-tax income. As long as the vehicle emits 75g/km CO2 or less, income tax and class 1 NICs are calculated based on the remaining salary, while the driver pays benefit in kind for the vehicle and the employer pays Class 1A NICs for providing it. Martinez explained that the Chancellor's decision not to adjust class 1A rates means that employers will not see any reduction in their NICs, which could potentially be passed on to employees. Additionally, the increased living wage means that some employees will no longer be eligible for salary sacrifice, as the vehicle payments would take them below the threshold.

Martinez concluded by urging the Chancellor to be cautious not to undermine the benefits of a system that is enabling drivers to switch to cleaner vehicles. He pointed out that the latest statistics from BVRLA show that 91% of salary sacrifice deliveries are electric.

For more information on the Autumn Statement, click here.

FutureCar Staff