how does it work?
The deduction is taken monthly from your net pay (after tax) and will not impact on your pension or benefits you may receive. The deduction scheme does not have any HMRC restrictions on what you can spend each month, which the sacrifice scheme does.
When you run a quote the price for deduction will be displayed on the left hand side of the screen and is the fully inclusive price.
Salary Deduction Breakdown
The monthly charge for the car and the Value added tax make up the monthly salary deduction, this is the amount that would appear on your payslip. The car benefit tax is an amount of additional tax the HMRC will charge you for having a company car, you won’t see this figure on your payslip, but it will be added to the amount of tax you pay each month. The total net cost is how much your take home pay will be reduced by.
This method also referred to as OpRA (optional remuneration Arrangement) by the HMRC, is a method whereby you agree to reduce your earnings and are provided with a non-cash benefit, in this case a car. In effect the monthly quote for the car Is deducted from your gross pay (before tax). The main benefits of this are a reduction in Tax, NIC and pension contributions each month, because effectively you are earning less.
Salary Sacrifice Breakdown
Salary sacrifice will have an impact on your pension arrangements and you should seek advice from the NHS Business Service Authority to understand more how this will impact you, https://www.nhsbsa.nhs.uk/nhs-pensions
Because salary sacrifice reduces your gross pay, it is subject to the national living wage restrictions imposed by the HMRC. This means no one can have a sacrifice from their salary that reduces their pay below the national living wage at any time during the life of the contract.
It is important to note that only gross basic pay is taken into account for the national living wage check, enhancements, overtime or additional income of any kind is not allowed to be used in the calculation.
When you run a quote the price for sacrifice will be displayed on the right hand side of the screen and is the fully inclusive price. It is important to note, this is not the figure you must compare against your monthly maximum salary sacrifice, as this includes savings.
Clicking breakdown, will provide more information of the costs.
The monthly salary sacrifice is the amount that will be deducted from your salary and shown on your payslip, this is also the amount that must be less than the estimated monthly maximum salary sacrifice, to pass the HMRC national living wage checks. If you proceed with an order, it will also be the amount used to calculate your annual sacrifice which you will need to agree to during the application process.
However, because you are sacrificing this amount of salary, you will make savings in TAX, NIC and if a member, pension. You will not see these on your payslip, but the monthly amount you normally pay for these, will be reduced by this estimate. The exception is TAX, whilst the TAX reduction will apply, the monthly car benefit tax will also be added to this.
In this example, £309.72 is deducted from pay and is the amount you will sign up to, but the impact on net take home pay is only £249.15.