Avid fleet press readers may have spotted the AFP’s announcement about salary sacrifice late last year. The organisation said current conditions were “hampering take-up” and cited “highly restricted electric vehicle supply, rising lease costs and the state of the wider economy – as well as a lack of engagement by some providers” as the chief snags. 

This is not the first time salary sacrifice has hit obstacles. The Government effectively wrote it off in the November 2016 Autumn Statement, when it upended the tax structure on which the perks hinge. As Business Car reported at the time, that announcement turned out to be less of a death knell than then-Chancellor Philip Hammond’s original uttering suggested. When we looked at the small print, it was more what we then described as “uncontrolled salary sacrifice”, such as supermarket vouchers or double glazing, on which the Treasury was clamping down. 

The move did affect cars, but they are a taxable benefit, which meant the likes of national insurance and pension savings remained in session and, depending on their emissions, some cars were not affected by the change at all. Even so, the statement made life trickier for those peddling salsac.

It came back with a bang in April 2020, when the Government abolished company car tax for zero-emissions models. Continually low EV tax, plus the scheme’s availability both to employees with a cash allowance and to non-company car drivers have kept it well in favour with fleets. 

In December, Tusker (one of the UK’s two main, dedicated salary sacrifice specialists, along with Zenith) boss Paul Gilshan told Business Car the company was at the end of its best-ever year, while AFP chair Paul Hollick said it was “still a killer product”. 

However, in last year’s press release, Hollick reported: “We’re picking up a general sense of disappointment from our fleets around salary sacrifice. there seems to be a widespread agreement that many just haven’t taken off in the manner that employers had hoped.”

We asked him to elaborate, and he told the story of a friend who’d taken a Tesla Model 3 on salsac in March. “It was £439 net in March,” he explains, “he went onto the same provider’s website about two months ago – when I did the press release – and it’s now over £700. No discounts anymore, reduced RVs, increased cost of finance and a captive market to some degree. There’s no competitor attention on salary sacrifice, it’s just an add-on scheme for employee benefits.”

Other funding methods are hardly immune from most of those issues. Within the past six months, the AFP has also reported that vehicle price increases have “damaged manufacturer-fleet relationships” and that high interest rates had caused some leasing companies to hike the price of vehicles already on order.  

All of the above feeds into what is arguably the best and the worst thing about salary sacrifice – that it is often served up to employees who do not have a company car allowance. As good as it is to broaden the perk, those unfamiliar with it may have great expectations, having previously been exposed to retail-style sales tactics, which sets them up for a fall. 

“A lot of the fleet managers I speak to are seeing drivers getting re-quoted three or four times upwardly on the price, and the vehicle delivery times are being extended,” explains Hollick, “arguably, that retail consumer taking a corporate product isn’t always getting a great experience. That’s not necessarily the fault of the leasing company or the salary sacrifice provider, it’s just market forces.”

Salary sacrifice providers are increasingly looking to off-the-shelf cars to get around the problem. “We really focused on stock vehicles to make sure that we had enough available. [for] a shorter lead time,” says Tusker’s Gilshan, “if you want something bespoke that’s factory-built, then that’s going to take a lot longer. November deliveries for stock vehicles were up 30%, and a lot of people aren’t seeing it as a compromise. They just think, ‘OK, that’s still a brand-new car and I can get it straight away’.”

Sogo, which operates a flexible salary sacrifice scheme, has done the same. “We actually operate from a stock position,” explains managing director, Karl Howkins, “if somebody comes along and says, ‘I want a particular car, I want it in white, and I want 17-inch wheels,’ we’d probably say, ‘OK, we can’t get you one of those – but we can get you a black one, it’s got 18-inch wheels, and you can have it in ten days.”

Employees new to salary sacrifice are the only ones who suffer from a lack of familiarity. Fleets themselves are not immune from it – especially those that lack a dedicated fleet manager – and the same can apply to non-specialist providers. Hollick – who advocates using suppliers who “know their onions” – describes a series of historic cases where employees were missing critical information about a popular electric car, but ordered one because they were eligible and they liked the look of it.

“In the old days, with the BMW i3, it only had two seats in the back, but they [the employee] needed three. There were people who would turn up at the dealership after they’d just ordered it off the web, because it was such a steal, and they hadn’t actually made sure it could accommodate their lifestyle. There are regularly things like that that fleet and HR communities need to deal with.”

It is something the more candid salary sacrifice suppliers will admit: “A lot of larger corporates regard this as great, then they suddenly start to think it’s a lot of work to manage the employees,” says Howkins, “we try to take it away from them, and say, ‘as long as you verify they are on your payroll, and they qualify for salsac, then we’ll do it’.”

Less trumpeted by specialists is that salary sacrifice represents a massive benefit for higher earners. Suppliers will happily wax lyrical about their public sector and NHS trust clients and we are not denying the positive impact of establishing EVs within such organisations. What they tend to keep quieter about (at least when they talk to the press) is, the bigger the salary, the bigger the kickback. 

“For sure, there are a lot of people taking your MGs and your Ioniqs”, explains Hollick, “but you’d be surprised. Revenue still views it as the domain of the Porsche-taker.”

He explains that salary sacrifice has effectively replaced traditional company car schemes in some cases. It can be easier for fleets – particularly smaller ones – than setting up a car scheme, especially one with the option of cash allowance, because employees might as well just plump for salsac. 

“The thing is you’ve got to remember is, if you’re paying 50% tax, and then you replace it with 2% tax on a car, that’s a lot better than when you were paying 20% tax or 19% tax. The higher the income, the better the benefit, particularly if you are earning between £100,000 and £122,000, when you could be paying 55% tax. [At that point] you lose your personal allowance and you’re also paying higher rate tax, so it really does become a no-brainer.”

Low-paid employees whose income would drop below the minimum wage if they received a car via salary sacrifice are ineligible for the scheme, and while it is often promoted as open to the majority, there is an argument for careful consideration around those who just creep into eligibility. This is chiefly because salary sacrifice is unregulated and employees giving up a portion of their income are not subject to credit checks as they would be with other forms of consumer finance. 

“With the energy crisis and the recession, there’s always a debate about whether you should be promoting something that is effectively offering people long-term credit against potentially living within their means,” says Hollick. 

“For sure, you should be able to let them make their own mind up. but I think companies just need to be mindful about making sure that employees are aware of the financial obligations.”

Nonetheless, he still believes that, where appropriate, fleets should “fill their boots” with salary sacrifice, especially with the foresight of EV tax tables until 2028 that the industry gained in November’s Autumn Budget.  

“My FD has not come from a leasing background. He didn’t even know about it as a possible benefit, and it’s almost too good to be true. He said, ‘tell me what the snags are’. Well, there aren’t any snags. 

“The only thing is that we need to be mindful about who we give it to and how we promote it, to make sure that people are taking the right vehicles for the right reasons, and are aware of the financial commitment – not just in the current year, but subsequent years, because the promoters tend to be promoting based on a price point in the current year when the tax tables will continue to go up. People need to be aware of that, and that they are locking themselves in for an elongated period.”