The headline measure announced in Jeremy Hunt’s Spring Budget was a cut in national insurance rates by 2%, and with salary sacrifice car schemes being based on gross pay, many people have automatically questioned whether the main benefits of salary sacrifice still apply. The good news is that salary sacrifice car schemes still represent the most cost-effective way for employees to drive the car of their dreams, and there are still cost benefits to be enjoyed by employees and employers alike.  

Effective from April 6th 2024, Class 1 national insurance contributions for the salary bracket between £12570 and £50270 were reduced from 10% to 8%. This follows an earlier reduction from 12% in January 2024. Of course this is a great benefit for the average working person but did also introduce some implications, one of which relates to salary sacrifice schemes. Fortunately, despite a general election taking place and the introduction of a new Labour government since the reduction to national insurance rates was announced, there doesn’t seem to be any sign of the current rates being reduced further, meaning there are still financial benefits to be gained from salary sacrifice schemes. 

How employees can pay less tax and national insurance with salary sacrifice 

From April 2017, legislation was introduced which enabled people registered on salary sacrifice car schemes to take the reduction of their salary from their gross pay, rather than their net pay. This specifically applied to drivers of low and zero emission cars, which meant most hybrid vehicles and all fully electric vehicles. Fundamentally this reduced the tax and national insurance contributions an employee would need to pay, because their gross salary was effectively reduced and qualified for a reduced HMRC contribution. The same applied for employers making a national insurance contribution for each individual employee. 

The new legislation effective from April this year means an employee earning a £25,000 salary is now saving £100 on their national insurance contributions and employees on a £50,000 salary is saving £200.  

Reducing national insurance contributions frees up spending for employees in all walks of life, which is particularly important as we navigate a cost of living crisis and an unstable economy. And whilst the changes do mean employees see a reduction in savings, those savings achieved through a salary sacrifice car scheme do still provide a financial benefit and, importantly, a number of key benefits.  

The key benefits of salary sacrifice car schemes 

In many cases the reduction on gross salary means employees qualify for a lower tax bracket, which enables them access to other benefits such as child benefit, but this essentially means an employee can be tax efficient, which is an important status in any circumstances. It is worth remembering that the reduction in national insurance contributions has no effect on income tax, so the employee is still paying the same rate of income tax, which in turn means those signed up for salary sacrifice are still enjoying the same reduced income tax benefits. 

Other cost benefits for the employee which aren’t affected by this national insurance change largely relate to the leasing scheme that salary sacrifice is based on, and driving electric vehicles. These benefits include: 

• Vehicle leasing – This is still much cheaper than buying a vehicle because you are only paying for the cost of depreciation, rather than ownership. 
• EV efficiency – Driving an EV is much cheaper than driving a petrol or diesel vehicle if you compare electricity/fuel on a cost per mile basis. EVs can also be charged overnight when electricity tariffs are cheaper. 
• Road tax – Although EVs are soon to become eligible for paying road tax for the first time, this is still cheaper than road tax for a petrol/diesel vehicle. 
• New vehicles – Due to the saving on payments when comparing leasing to buying, salary sacrifice enables the employee to drive a higher spec of vehicle than they could otherwise afford. A consequence of this is that these higher spec vehicles enjoy better technology, driveability, safety features and energy-efficiency.  
• Budgeting – Leasing a vehicle through Pink Salary Exchange means you only have one monthly ‘payment’ for all your motoring costs, i.e. the lease cost, service and maintenance and insurance. Although of course this ‘payment’ is actually the portion taken from your salary. However, this one payment makes budgeting much easier and means you only have to worry about charging the vehicle.  

Overall, there are still great benefits to be enjoyed for the employee when signing up for a salary sacrifice car scheme with Pink Salary Exchange, and of course the employer also enjoys reduced national insurance contributions too. The employer is similarly affected by this new legislation, in the sense that the savings are reduced as of April 2024, however, the employer still enjoys a lower carbon footprint, better compliance, reduced fleet costs and improved employee loyalty and motivation as a result of salary sacrifice.  

In summary, whilst the Government’s reduced national insurance contributions do impact on the cost benefits of salary sacrifice car schemes, the savings of such schemes still outweigh the reduction, and offer a multitude of other benefits, for both employees and employers. So contact our team at Pink Salary Exchange, and sign-up for our game-changing salary sacrifice car scheme today.