Salary Sacrifice Car Schemes: A Win for Employers and Employees Alike
Following on from the growing move to electric company vehicles, there’s another opportunity worth putting in front of your staff: salary sacrifice. It’s one of the few benefits that genuinely works in both directions — saving the business money while giving employees access to a new car at a lower cost than they could get on their own.
Here’s how it works, and why it’s worth considering.
What Is Salary Sacrifice?
A salary sacrifice car scheme lets an employee give up part of their gross salary (before tax and National Insurance) in exchange for a car, usually including insurance, maintenance, and breakdown cover all rolled into one monthly amount. Because the sacrifice comes out of gross pay rather than net pay, the employee reduces their taxable income — which is where the savings start to add up.
The Benefits for Employees
- Lower tax and National Insurance: Because payments are taken before tax, employees reduce the salary they pay tax and NI on, effectively lowering the overall cost of the car compared to funding one privately.
- Everything in one payment: Insurance, servicing, maintenance, and often breakdown cover are typically bundled into the monthly cost, removing the hassle of arranging and paying for these separately.
- Access to newer, often electric vehicles: Salary sacrifice makes it more affordable for employees to drive a newer car — and particularly an electric one — than they might otherwise budget for, thanks to the tax savings stacking especially well with low EV Benefit-in-Kind rates.
- No credit checks or deposits in most cases: Because the scheme runs through the employer, employees typically avoid the credit checks and upfront deposits that come with personal finance or leasing.
- Simple, predictable budgeting: One fixed amount comes out of salary each month, with no separate bills for insurance, servicing, or tyres to plan around.
The Benefits for Employers
- National Insurance savings: Because the sacrificed salary is no longer subject to employer National Insurance contributions, businesses typically make a saving on every employee who joins the scheme.
- A valuable, low-cost benefit to offer: Salary sacrifice can be introduced at little to no direct cost to the business, while still functioning as a genuine, attractive employee benefit.
- Supports recruitment and retention: Benefits that put real money back in an employee’s pocket tend to stand out. Offering access to new, often electric cars can help a business compete for talent without increasing salary budgets.
- Supports company sustainability goals: Many salary sacrifice schemes are structured to particularly favour electric and low-emission vehicles, meaning a scheme like this can quietly support a business’s wider environmental commitments as more staff switch to EVs.
- Simple to administer: Once set up, the scheme runs alongside payroll with the leasing company handling the vehicle side, keeping the administrative burden on the business low.
Why It Pairs So Well With Electric Vehicles
Salary sacrifice and EVs are a particularly strong combination right now. Because electric vehicles sit in such a low Benefit-in-Kind band, employees choosing an EV through a salary sacrifice scheme often see the biggest tax savings of all — sometimes significant enough to make a new electric car more affordable through salary sacrifice
than buying a much older petrol car privately. For businesses, that means a salary sacrifice scheme can be one of the most effective ways to get more electric vehicles on the road without any of the fleet ownership or infrastructure planning that comes with a company car scheme.
Things Worth Considering
- Salary and minimum wage rules: Sacrificing salary can’t take an employee’s pay below the National Minimum Wage, so eligibility needs to be checked for lower earners.
- Impact on other salary-linked benefits: Because it reduces gross salary, it’s worth flagging to employees that this could affect things like mortgage applications, pension contributions, or statutory pay calculations, so they can make an informed
choice. - Scheme setup: Salary sacrifice needs to be arranged correctly with payroll and often through a leasing partner who can administer it — it’s not something to set up informally.
Is It Right for Your Business?
For businesses with staff who’d value access to a new car — especially an electric one — salary sacrifice is one of the few benefits that pays for itself. Employees save on tax, employers save on National Insurance, and the business gains a genuine recruitment
and retention tool, all while supporting a move toward a greener fleet.
Curious whether a salary sacrifice scheme could work for your business? Get in touch and we’ll talk you through how it’s set up and what it could save your team.