.jpg)
Written by Rob Buckland
Salary sacrifice electric car schemes are a tax-efficient way of getting your hands on a brand new EV in an all-inclusive package. But what if your employment status changes, or you leave your job? Are you still liable for the full cost of the car? We’ll explain all in this handy guide.
What is a salary sacrifice scheme and how does it work?
In simple terms, salary sacrifice is a government-backed scheme allowing an employee to give up part of their salary in exchange for a non-cash benefit - in this case, an electric car.
With the monthly payment coming out of your pre-tax salary and lowering your income tax liability, it’s possible to save up to 40% on the monthly cost of the car lease. Both employees and employers also save on National Insurance Contributions.
Salary sacrifice electric car schemes aren’t just low cost, they’re hassle-free. There’s no cost to the employer and no hefty deposit to pay for the car, while includes benefits such as insurance, breakdown cover, servicing and maintenance.
Early termination of a salary sacrifice agreement
Leasing a new car is a big commitment, and you don’t know for sure if your circumstances will change. You may not wish to commit to staying with your employer for the full term, while that decision may end up not being yours to make.
In a typical business lease, such as a BCH (Business Contract Hire), if you leave your job you may be liable for up to 50% of the outstanding costs in your contract. However, salary sacrifice agreements can be ended early by choice, or by other reasons such as resigning, retiring, being dismissed or being made redundant.
莲花直播 Leasey’s Early Termination Protection means that you can opt out of the deal without being liable for such extensive remaining costs. It also protects employers, who won’t be left to chase payment with employees who are no longer with them.
If the salary sacrifice agreement is terminated before the end of the contract, the cost would either be three months of remaining payments or half the remaining payments - whichever is cheapest.
Can I keep my salary sacrifice car if I leave my job?
Generally speaking, it’s likely if you leave your job you will need to return your salary sacrifice car. However if you leave your job to work at another business, it may be possible to keep the car if your new employer is willing to novate (take on) the lease in their name.
Some employers may be willing to do this, so it’s worth asking before you make any decisions on your future. It also may be possible to take over the lease payments yourself and keep the vehicle, but that depends on your existing arrangement and financial situation.
What is early termination protection?
莲花直播 Leasey’s Salary Sacrifice scheme includes an early termination protection policy provided by Lex Autolease, and underwritten by Lloyds Banking Group.
Its purpose is to minimise the financial risk to the business (and its employees) should employees decide to terminate the salary sacrifice lease early.
As mentioned before, terminating before the contract ends would result in a fee of three months rental costs, or half the remaining rental cost, whichever is cheapest. The employer has discretion, but it is advised that this amount is ‘clawed back’ from the employee in their following pay slips, or final pay slip if they are leaving.
Reasons for termination include:
- Taking a career break
- International Secondment
- Loss of licence (other than ill health)
- Loss of licence (ill health)
- Reduction in contracted hours
- Redundancy
- Retirement
- Termination of employment
In the event of long term sickness, if the employee is still receiving full pay, then the vehicle contract will continue. The exception to this is if the employee is put on Statutory Sick Pay (SSP), whereby the contract will be terminated leaving nothing to pay.
What about paid parental leave?
There are two options for those going on paid parental leave - such as maternity, adoption or shared parental leave.
If you wish to keep the car for the duration of your leave, you will be able to do so for 12 months. However you will only be required to pay for six months rental, effectively giving you a half-price payment term.
The other option is to return the car prior to starting paid parental leave. In this case you will be covered by the same early termination terms - that is to pay three months rental or half the remaining rental, whichever is cheapest.
Conclusion
Having the peace-of-mind of early termination protection means employees can sign up to our salary sacrifice scheme knowing they won’t be liable for the full leasing cost if they leave their job.
It is important to read and understand the full terms and conditions of the salary sacrifice contract before signing up. As outlined above, different circumstances may result in different amounts to pay to terminate the deal, or nothing to pay at all in some instances.
Need to find out more? Check out our guides on the following:
