BiK Tax in Salary Sacrifice Car Leasing

Imagine you get paid £2,000 per month. With a salary sacrifice scheme for a company car, you agree to take a lower salary, say £1,800, and use the remaining £200 to pay for the insurance (or pocket it for something else). It's like giving up some pocket money each month for the privilege of having a car.

You should already know this by now if you have read the previous articles about salary sacrifice.

BiK Tax: The Catch with Company Cars

Even though you're taking a pay cut, the government sees the company car as a benefit on top of your salary. This benefit is taxed through BiK, just like Emily's car in the previous article (go back and read it if you haven't!). You still have to pay tax on the value of the car you're using personally.

The Potential Tax-Saving Twist

Here's where it gets interesting. Because you're earning less salary, you might end up paying less income tax and National Insurance contributions. These are taxes taken directly out of your paycheck. So, the £200 you "sacrifice" from your salary might be offset by, say, £150 saved in income tax.

Making the Math Work (It Depends)

However, this saving isn't guaranteed. Here's why:

• Your Tax Band Matters: The higher your tax band (the more you earn), the higher the percentage of income tax you pay. So, sacrificing your salary can save you more income tax if you're in a higher bracket.
• The Car's Emissions Play a Role: Remember BiK tax is based on the car's CO2 emissions. Lower emissions mean a lower BiK tax band. So, a fuel-efficient car (an electric car) can make salary sacrifice even more attractive.

Think of it Like Balancing Scales:

Imagine two scales. On one side, you have the BiK tax you pay for the car's value. On the other side, you have the income tax you save by taking a lower salary. Ideally, the savings side outweighs the BiK tax side, making the car seem more affordable.

Is Salary Sacrifice Right for You?

There's no one-size-fits-all answer. Consider these factors:

• Do the Calculations: Speak to our expert advisers to figure out the potential tax savings and BiK tax you'd be responsible for.
• Think About Your Needs: How much will you use the car personally? Is the chosen car model fuel-efficient to minimise BiK tax? An electric car is perfect for this due to the potential savings.

Remember: BiK tax is still there, but salary sacrifice can potentially make company cars with lower emissions a more affordable option by leveraging tax savings. It's best to weigh the pros and cons based on your specific situation.

If you need any help with regard to the financial aspect of salary sacrifice, please get in touch with us today. You can call us on 0151 728 4711, speak to us on WhatsApp or email us at Sales@stablevehiclecontracts.co.uk.