When comparing job offers, salary is only part of the picture. Employee benefits can make a significant difference to your overall package, and one benefit that has become increasingly popular is a salary sacrifice car scheme.
But what exactly is salary sacrifice, and could it help you get behind the wheel of a brand-new car for less?
For more vehicle ownership advice, visit our valuation guidance hub.
What Is Salary Sacrifice?
Salary sacrifice is an arrangement between an employer and employee where the employee agrees to give up a portion of their gross salary in exchange for a non-cash benefit.
Common salary sacrifice benefits include:
- Company cars
- Electric vehicle (EV) schemes
- Cycle-to-work programmes
- Pension contributions
- Childcare benefits
With a salary sacrifice car scheme, part of your salary is exchanged for the use of a leased vehicle, with payments taken before Income Tax and National Insurance contributions are calculated.
How Does a Salary Sacrifice Car Scheme Work?
A salary sacrifice car scheme allows employees to lease a new vehicle through their employer without paying a large upfront deposit.
Most schemes include:
- Vehicle lease payments
- Road tax
- Maintenance and servicing
- Breakdown cover
- Insurance (depending on the provider)
The cost is deducted directly from your gross salary each month, which can reduce your taxable income and potentially lower your overall motoring costs.
Unlike a traditional car purchase, you do not own the vehicle. The leasing company remains the registered keeper, and the car is returned at the end of the agreement.
How Much Does It Cost?
The monthly cost depends on several factors, including:
- The make and model you choose
- The contract length
- Your annual mileage allowance
- Whether insurance is included
Many employers provide a list of approved vehicles available through their scheme, making it easy to compare options and costs.
For many employees, the overall monthly cost can be lower than financing a vehicle privately, particularly when maintenance, insurance and road tax are included.
What Are the Benefits?
Salary sacrifice car schemes offer several advantages:
Lower Monthly Costs
Because payments are taken from your gross salary, you may pay less tax and National Insurance, reducing your overall motoring costs.
Access to a Brand-New Vehicle
Many schemes provide access to the latest models, including electric and hybrid vehicles, without requiring a large deposit.
All-Inclusive Running Costs
Most schemes bundle together several vehicle-related expenses into one fixed monthly payment, helping you budget more effectively.
Potential Tax Savings
Electric vehicles are particularly attractive under salary sacrifice schemes because they currently benefit from low Benefit-in-Kind (BiK) tax rates compared with petrol and diesel vehicles.
Are There Any Drawbacks?
Before signing up, it’s worth considering:
- Your gross salary will be reduced, which may affect certain benefits or borrowing applications.
- Early termination fees may apply if you leave your employer.
- Mileage restrictions may apply.
- Excess wear-and-tear charges could be payable when returning the vehicle.
Always review the scheme’s terms and conditions carefully before committing.
Should You Consider a Salary Sacrifice Car Scheme?
If you’re looking for a cost-effective way to drive a new vehicle, particularly an electric car, a salary sacrifice scheme could be an excellent option.
The combination of potential tax savings, lower monthly costs, and bundled running expenses makes it an attractive benefit for many employees.
Before making a decision, speak to your employer or scheme provider to understand exactly what’s included and whether the arrangement suits your circumstances.
If you have a company car, and you’re wondering what the rules are on selling, then you can find out if you can sell a company car with our latest article here.
Related Reading
Value Your Current Car Before Leasing
If you’re planning to take advantage of a salary sacrifice car scheme, you may need to sell your current vehicle first.
Jamjar helps you compare offers from trusted UK car buyers, making it quick and easy to find the best price for your car. Simply enter your registration number into our free online valuation tool to see how much your car could be worth today.