A few months ago, most people thought salary sacrifice was finished. Many still think so, and salary sacrifice schemes have been dogged by fallacy ever since the UK Government announced new rules to tax them ‘more fairly’ in the November 2016 Autumn Statement.

The small print revealed that schemes with no taxable benefit were the actual target; some companies were offering salary sacrifice on the likes of double glazing, supermarket vouchers and cases of wine, which is what the government was really trying to rub out.

Cars are a taxable benefit, and though they were affected by the changes introduced in April (the previous tax advantages have more or less gone), they can still be salary sacrificed, just as they could before. That message hasn’t got through to everyone though, and a great number of fleet operators still perceive salary sacrifice to have gone up in a puff of smoke.

“The headline at the time was ‘the death of salary sacrifice’, and the reality was, that wasn’t true,” says Nick Hardy, sales and marketing director at leasing firm Ogilvie Fleet. “Unfortunately, when you get headlines like that, people tend to believe them, so we’ve had a heck of a job in the past few months, going round current and potential salsac customers saying, ‘it’s not dead in the water’. It has changed, yes, and ultimately, what was a scheme for which there were some significant tax advantages, is now a scheme by which there are, generally, no longer any tax advantages; but that doesn’t mean to say it’s dead.”

It’s the same story everywhere. Colin Knowles, chairman of Knowles Associates, which specialises in public sector fleet management, has also been through the rigmarole of spelling things out, specifically that the absence of tax savings isn’t as bad as people think. “We spent a great deal of time visiting our clients face to face, actually explaining what had happened, and there was a huge amount of confusion,” he says. “The biggest thing I found was that people genuinely thought they were getting a significant income tax saving through salary sacrifice.

“What very few people did was offset some of those income tax savings through payroll with the car benefit tax they paid on their company car. For example, if you were saving £50 a month in income tax, and paying £40 a month in car benefit, you were only actually saving £10. So the loss that came about as a result of the legislative change was not the full income tax saving – it was just the difference between the benefit-in-kind cash equivalent and the reduction in income tax on your salary. When people realise ‘actually, that’s not such a large amount’, the salary sacrifice is still a good option.”

Ultra low emission vehicles (those emitting 75g/km of CO2 or less) were exempt from the changes that took effect at the turn of the financial year so, at least in taxation terms, they continue to make sense for salary sacrificers. However, some small cars with emissions a little above the 75g/km mark have been adversely affected.

“It’s those cars that are between probably 76 and 90g/km and are low value, where the salary you sacrificed wasn’t that great, and therefore you were making a tax saving,” explains Lauren Pamma, head of fleet consultancy at Lex Autolease.

“That tax saving is probably gone now that you are taxed on the higher salary or the benefit-in-kind, so I wouldn’t be surprised if the sort of Fiesta-type car is looking less popular than it was.”

Despite the changes, salary sacrifice is still an attractive perk for employees who aren’t offered a company car. Tax savings or not, the reason people go for it remains the same: they can get a new car that’s significantly cheaper than if they were to fund it themselves, with a few extras thrown in.  

“For many people, it is still a very affordable way to get a new car, because you can access the corporate discounts of the employer,” adds Pamma. “You get your insurance included and all your costs are fixed for the two or three years you have it.”

The sweet spot continues to be large businesses or public sector organisations with medium-income earners. The issue with offering salary sacrifice to low-income employees is that the deductions can tip them below minimum wage, which is a redundant practice.    

“You’ve got to look at the employee base that you need for salary sacrifice to work,” says Hardy. “You need people who are earning above the minimum wage, because otherwise it can’t work, so you need solid workforces that have longevity in their employment base. To put some kind of marker on it, it tends not to work quite so well with companies that have fewer than 500 full-time, better-paid employees.”

“I was recently involved in a project with a group of businesses that employed a lot of sales staff,” says Knowles. “Because the sales staff were paid on commission, they had a low basic, and their salary was topped up with commissions and bonuses, so many of them wouldn’t have qualified for a sacrifice scheme.”

In this instance and others – not least where salary sacrifice is either less effective or perceived to be less effective – eco schemes have grown in popularity, according to Knowles. “Effectively, eco schemes are an opportunity to lease a car under a contract purchase agreement. What you’re getting, essentially, are fleet terms or improved terms, yet the car is still technically owned by the leaser – the employee,” he says.

“These schemes have been popular because they get some of the benefits of a company car scheme but they avoid car benefit tax at the moment. This is an area in which we are waiting to see the outcome from HMRC’s review of salary sacrifice schemes because, technically, eco schemes didn’t come within the scope of that review. But they are loosely classed as ‘optional remuneration schemes’ – so it’s something that an employee can choose to have in lieu of pay and may well, in the future, come within the scope of the new salary sacrifice regulation.

“They’ve become more popular as an alternative to salary sacrifice in many cases, because there is some misunderstanding, and a lot of businesses may well have taken an alternative option because they thought that salary sacrifice was no longer an attractive deal.”

This is very much a sign of the times for salary sacrifice. It may have endured a spate of reputational damage, and lost its tax appeal but, as we’ve seen, it’s still a fine perk for the right type of fleet. However, it isn’t a kill-all solution and, given the government’s incessant meddling, it makes sense as part, but not all, of a fleet’s make-up – and the same goes for just about every other form of funding.

“It still works very well for many fleets but I think we’re going to be moving towards a far more diverse portfolio of funding products,” says Caroline Sandall, director at ESE UK Consulting and deputy chairman of the Association of Car Fleet Operators.