SALARY sacrifice is the hot topic; the growth vehicle financing area; and it’s helping to get more people into electric cars thanks to the taxation savings available.
Last month, in conjunction with BCF Wessex, we examined how leasing brokers could take advantage of the massive interest in salary sacrifice with our Broker guide to setting up salary sacrifice.
It makes desirable cars, such as the BMW i4 (main picture and above), really attainable. But in the interests of Treating Customers Fairly (TCF), salary sacrifice isn’t the right product for everyone. These include:
- Sole traders
- Partners
- Owner-directors remunerated predominantly by company dividends
As the self-employed are subject to very different tax rules, let’s focus on company directors and consider what can be done for them if they’ve been drawn in by the huge savings salary sacrifice can potentially deliver.
What’s the issue with owner-directors?
Fundamentally it’s down to how they are remunerated.
Many owner-directors seek to minimise their tax liabilities by paying themselves a nominal salary and topping up their income with dividends.
Since dividends are taxed at a lower rate than a monthly salary, and are not subject to NIC, the tax and NIC savings that make salary sacrifice so appealing to PAYE employees are not available to them.
So what’s to be done?
Tax and software consultants BCF Wessex – makers of the Gensen suite of taxation tools – says that for a range of taxpayers, including UK basic rate and higher rate, Business Contract Hire (BCH) is a more cost effective solution than salary sacrifice.
So let’s go back to that BMW i4 which the business director wanted on salary sacrifice – because he’d heard it was the smart thing to do – and see what would be a more cost effective solution for him.
A choice of BMWs
Here we have calculations for conventional BCH – petrol, electric and diesel versions of the 4 Series.
And while the P11Ds and rentals of the ICE cars look financially more appealing, the electric i4 is much more cost effective given the tax breaks available and its overall running costs.
But before we commit this director to BCH on the i4, let’s consider the alternative for directors, which is financing the vehicle personally on Personal Contract Hire (PCH) and then claiming AMAP running costs for business mileage.
While both petrol and diesel 4 Series are cheaper on PCH, it’s clear that the best option is still the i4 as a company car.
Should the director consider a PHEV instead?
We’ve lined up above a selection of alternatives from Mercedes-Benz to see if a PHEV – if you can wait long enough for one – would be the answer. But actually the EV still wins. Here’s why.
Taking the PHEV as a company car, it has comparable whole life costs (WLC) to the EV. And both are significantly cheaper than the ICE equivalents. But, the PHEV loses ground because it attracts a higher benefit in kind tax charge compared with the EV – more than £130 a month.
Even if we were to switch calculators and consider the cost of a company or personal lease, taking in to account the BiK tax the director will pay, the EV company car is a clear winner.
Conclusion
With PCH on the ropes as an alternative funding solution, everyone is looking at salary sacrifice as the answer to funding their next vehicle
But as we’ve demonstrated, it’s not always appropriate and there are circumstances when traditional BCH will be the right answer, as is the case for owner directors who can make the decarbonisation transition to EV via BCH on an electric car.
So, how can I make comparisons like these?
- It’s simple really; the answer is Gensen
- Gensen is a suite of WLC calculators and comparators designed to make the complex simple
- It’s a point of sale toolkit that allows you to do calculations like this in minutes, while sitting across the desk from your client, or live on a video conference call
- But with its enhanced csv reports and a multirate book option that allows you to load customer specific rates
- It now enables you to perform more detailed work too, helping you put together a fleet policy for your customer and undertake regular reviews
For more information contact: 0141 280 2020 | info@bcfwessex.co.uk
Ralph Morton is the leading journalist in the leasing broker sector and editor of Broker News, the website which provides information and news for BVRLA-registered leasing brokers. He also writes extensively on the fleet and leasing market in both the UK and Europe.
