I joined a new business in May and opted for the allowance because of all of the unknowns of a post covid workd (when we get there!). But i am now considering joining the company car scheme as they do encourage PHEV and EV's including the model 3. So this vido has been hugely helpful thank you!
Great video, my employer is offering a car allowance and this can be put towards a salary sacrifice scheme. How does BIK work in this instance? The company is paying towards the car but not fully in most cases so does the usual P11D BIK value still apply as the benefit is not the total car provision. I'm nervous about adjustments to tax later on as previous mistakes have been costly.
Hi and thanks. I would assume the car allowance will be paid in addition to your salary and taxed accordingly, in the same way commission or a bonus would be. Therefore, it will not impact the BIK you will pay on the car if purchased by salary sacrifice - the same rules ought to apply, as you are saving tax on the sacrifice element and this is what HMRC are looking at. Just my view, looking at it logically, but definitely worth checking with your company or even HMRC - just to be certain.
Thanks for this. My company offers car allowance (before tax) and is considering business lease or salary sacrifice. The car allowance would continue for salary sacrifice but not for business lease. Business lease rates seems a lot less than salary sacrifice so it seems to me that a business lease (paid in full by company) is better than salary sacrifice?
Assuming I understand you correctly then all you will be liable for is the BIK, which will depend on the type of vehicle you receive. If it's an EV then it's a no brainer. If it's a high emission petrol car then it is worth doing the comparison. Have a look at my downloadable calculator on my follow up video to this one - you may find it useful.
Hey Paul . Really good videos. Unique position for me .. my employer is offering car allowance and also opened up salary sacrifice to most of the company to access sponsored car leases, fully insured and maintained. In a crude way with salary sacrifice could I assume that my car allowance value say is £500 and my salary sacrifice value is £500 would I be breaking even on this ? . As the money in the allowance is given to me and then taken away from me before tax in consideration of the salary sacrifice value …. If this makes sense 😂 thanks for any feedback or thoughts that you have ! 👍🏻
Good question, John, and an interesting choice from your employer. If you download the excel sheet I wrote and have a play, you will be able to make some comparisons. I have just had a quick go and, assuming you could find a personal lease for, let's say, 20% more then the company sponsored offer (so £600/month on your example), then you would still be quite a bit better off taking the allowance. At the end of the day, money given to you, even when taxed, will always be more than money taken from you, even if not taxed. However, how you spend it is key. The key differentiators are: your tax rate (the higher the tax rate, the smaller the difference between the two, because you'd be paying more tax on the allowance but saving more tax on the salary sacrifice) and, most importantly, what kind of lease deal you could find as a private shopper, which will definitely not be as good as a company sponsored one. You may find that the difference between the two is cancelled out by the incremental costs of shopping as a single customer. I'd start getting some real world quotes so you can compare actual numbers on the sheet. You'll get your answer from there. Hope this helps.
If you use salary sacrifice, do you lose in employer pension contributions and does your gross salary in effect reduce meaning your borrowing potential is less?
Hi. Salary sacrifice comes off your gross salary, rather than reduce it. Your employer pension contributions are based on your gross salary, so this won’t be affected by the salary sacrifice. Don’t worry. The borrowing question is a little less straight forward, as some lenders (in my experience) want to know your gross salary, which is unchanged by being on salary sacrifice, while others want to know your monthly take home, which obviously is affected. However, remember, your take home would be reduced even more if you were paying for a car lease from your net pay. Plus, the lenders generally ask that question to ensure you don’t put yourself under financial pressure, so it’s not necessarily a bad thing. Hope that helps!
Hi. On a car allowance, the emissions of the car don’t come into play. The company pays you an amount, you pay your standard rate tax on that amount and then you privately source a car. The only place you see an impact of the emissions is in the road tax you then pay. However, if you lease a car, the road tax is generally included within the lease fee, so you wouldn’t pay it then either.
@@PaulsViewsReviews thanks. I see lots of advice to stay away from a PCP with a car allowance. But i see it as a good option myself. I’d like to think the car will be worth more than the balloon payment at end of term if I keep the mileage low. So I’d have a couple grand bonus… Many say “get a bank loan instead” or “lease” not PCP. Whats your personal view?
@@-Chunk They each have their merits. Leasing is generally cheaper than PCP and you won’t incur the cost of servicing or road tax, if you opt in for that, BUT you’ll never own the car. A loan means a better rate of interest over PCP, as a rule, and you own the car from day one, albeit with a personal debt. If you’re planning to buy something expensive then you need to be aware that a big loan will possibly be secured against your house - if you have one. That being the case, it would be cheapest of all to get a mortgage against your house to buy it - I’ve done that before as the interest rate was less than 2%. A big plus is that you can sell it or change it whenever you like, as well being able to negotiate as a cash buyer. PCP is still a decent option, as you also still have the option to own the car, but the interest rate is generally pretty high, you’ll need to be able to find the balloon figure if you want to own it and you will incur all the costs of ownership throughout your agreement on most deals. You should indeed likely have some collateral at the end of the period, before the balloon is due, but that’s because dealers set it up so you are paying slightly more than the anticipated depreciation each month, giving you a deposit for your next one, IF you agree to trade in, as opposed to you walking away or paying the balloon. Arguably the monthly lease cost of a car is closer to its true level of anticipated depreciation. PCP really is intended for you to never fully own the car, and works for most people who like to have a new car every 3 years and are happy with an ongoing monthly cost. Depends if you ever want to own your car and don’t mind it being older than 3 or 4 years.
This is great, so using the online salary sacrifice schemes for a fully electric car I just use the amount sacrificed. From here work outntheb1% of the value value a realistic cost
You may find the follow-up video to this one useful, as I have included a link to an Excel document I put together to allow for full price calculations of salary sacrifice (plus company car and cash allowance). Just click the link in the description of that video (ua-cam.com/video/798sSANe3dg/v-deo.html), download from dropbox and have a play!
Really informed and well presented video to help me understand the options available.
Glad I could help.
Great video love the detail, this will definitely help making my decision
Glad I could help
I joined a new business in May and opted for the allowance because of all of the unknowns of a post covid workd (when we get there!). But i am now considering joining the company car scheme as they do encourage PHEV and EV's including the model 3. So this vido has been hugely helpful thank you!
Excellent! Just glad I can help.
Just watched your video Paul - nicely set out and covers all aspects. Thanks
Thanks; I hope it was beneficial.
This is a fantastic video explaining salary sacrifice!! Thank you very much for posting this. Really helped us out bud 👍🏻👍🏻👍🏻
Really glad I could help. Thanks for the feedback!
Great video. Helped me an awful lot. Salary sacifice decision made instead of personal lease. Thank you 👍
Glad it was helpful!
Great video, very useful. I'm about to swap into salary sacrifice in next few months .
Really glad it was useful. Enjoy shopping!
Great video, my employer is offering a car allowance and this can be put towards a salary sacrifice scheme. How does BIK work in this instance? The company is paying towards the car but not fully in most cases so does the usual P11D BIK value still apply as the benefit is not the total car provision. I'm nervous about adjustments to tax later on as previous mistakes have been costly.
Hi and thanks. I would assume the car allowance will be paid in addition to your salary and taxed accordingly, in the same way commission or a bonus would be. Therefore, it will not impact the BIK you will pay on the car if purchased by salary sacrifice - the same rules ought to apply, as you are saving tax on the sacrifice element and this is what HMRC are looking at. Just my view, looking at it logically, but definitely worth checking with your company or even HMRC - just to be certain.
Thanks for this. My company offers car allowance (before tax) and is considering business lease or salary sacrifice. The car allowance would continue for salary sacrifice but not for business lease. Business lease rates seems a lot less than salary sacrifice so it seems to me that a business lease (paid in full by company) is better than salary sacrifice?
Assuming I understand you correctly then all you will be liable for is the BIK, which will depend on the type of vehicle you receive. If it's an EV then it's a no brainer. If it's a high emission petrol car then it is worth doing the comparison. Have a look at my downloadable calculator on my follow up video to this one - you may find it useful.
Nice bro
Cheers buddy
Hey Paul . Really good videos. Unique position for me .. my employer is offering car allowance and also opened up salary sacrifice to most of the company to access sponsored car leases, fully insured and maintained. In a crude way with salary sacrifice could I assume that my car allowance value say is £500 and my salary sacrifice value is £500 would I be breaking even on this ? . As the money in the allowance is given to me and then taken away from me before tax in consideration of the salary sacrifice value …. If this makes sense 😂 thanks for any feedback or thoughts that you have ! 👍🏻
Good question, John, and an interesting choice from your employer. If you download the excel sheet I wrote and have a play, you will be able to make some comparisons.
I have just had a quick go and, assuming you could find a personal lease for, let's say, 20% more then the company sponsored offer (so £600/month on your example), then you would still be quite a bit better off taking the allowance. At the end of the day, money given to you, even when taxed, will always be more than money taken from you, even if not taxed. However, how you spend it is key.
The key differentiators are: your tax rate (the higher the tax rate, the smaller the difference between the two, because you'd be paying more tax on the allowance but saving more tax on the salary sacrifice) and, most importantly, what kind of lease deal you could find as a private shopper, which will definitely not be as good as a company sponsored one. You may find that the difference between the two is cancelled out by the incremental costs of shopping as a single customer.
I'd start getting some real world quotes so you can compare actual numbers on the sheet. You'll get your answer from there. Hope this helps.
Love to see any decent EV for 40k
The new Model 3 Standard Range is under £40k. I drive one and it’s awesome!
If you use salary sacrifice, do you lose in employer pension contributions and does your gross salary in effect reduce meaning your borrowing potential is less?
Hi. Salary sacrifice comes off your gross salary, rather than reduce it. Your employer pension contributions are based on your gross salary, so this won’t be affected by the salary sacrifice. Don’t worry.
The borrowing question is a little less straight forward, as some lenders (in my experience) want to know your gross salary, which is unchanged by being on salary sacrifice, while others want to know your monthly take home, which obviously is affected.
However, remember, your take home would be reduced even more if you were paying for a car lease from your net pay. Plus, the lenders generally ask that question to ensure you don’t put yourself under financial pressure, so it’s not necessarily a bad thing.
Hope that helps!
Do you only pay income tax on a car allowance?
Or is co2 etc considered as well?
Hi. On a car allowance, the emissions of the car don’t come into play. The company pays you an amount, you pay your standard rate tax on that amount and then you privately source a car. The only place you see an impact of the emissions is in the road tax you then pay. However, if you lease a car, the road tax is generally included within the lease fee, so you wouldn’t pay it then either.
@@PaulsViewsReviews thanks. I see lots of advice to stay away from a PCP with a car allowance. But i see it as a good option myself. I’d like to think the car will be worth more than the balloon payment at end of term if I keep the mileage low. So I’d have a couple grand bonus…
Many say “get a bank loan instead” or “lease” not PCP. Whats your personal view?
@@-Chunk They each have their merits. Leasing is generally cheaper than PCP and you won’t incur the cost of servicing or road tax, if you opt in for that, BUT you’ll never own the car.
A loan means a better rate of interest over PCP, as a rule, and you own the car from day one, albeit with a personal debt. If you’re planning to buy something expensive then you need to be aware that a big loan will possibly be secured against your house - if you have one. That being the case, it would be cheapest of all to get a mortgage against your house to buy it - I’ve done that before as the interest rate was less than 2%. A big plus is that you can sell it or change it whenever you like, as well being able to negotiate as a cash buyer.
PCP is still a decent option, as you also still have the option to own the car, but the interest rate is generally pretty high, you’ll need to be able to find the balloon figure if you want to own it and you will incur all the costs of ownership throughout your agreement on most deals. You should indeed likely have some collateral at the end of the period, before the balloon is due, but that’s because dealers set it up so you are paying slightly more than the anticipated depreciation each month, giving you a deposit for your next one, IF you agree to trade in, as opposed to you walking away or paying the balloon. Arguably the monthly lease cost of a car is closer to its true level of anticipated depreciation. PCP really is intended for you to never fully own the car, and works for most people who like to have a new car every 3 years and are happy with an ongoing monthly cost. Depends if you ever want to own your car and don’t mind it being older than 3 or 4 years.
Crooks. Taxation without representation.
Death and taxes - the two certainties in life!
This is great, so using the online salary sacrifice schemes for a fully electric car I just use the amount sacrificed.
From here work outntheb1% of the value value a realistic cost
You may find the follow-up video to this one useful, as I have included a link to an Excel document I put together to allow for full price calculations of salary sacrifice (plus company car and cash allowance).
Just click the link in the description of that video (ua-cam.com/video/798sSANe3dg/v-deo.html), download from dropbox and have a play!