Business lease vs salary sacrifice

If you’re looking to lease your next vehicle, you might be eligible for a business lease or salary sacrifice scheme. Choosing the right one will ensure you have a lease that meets your specific needs. Here at Synergy, we’ve put together this guide to explore business leasing and how it compares to salary sacrifice. We’ll cover the basics of each, the benefits they can have, and how to decide which is best for you.

What is the difference between a business lease and salary sacrifice leasing?

If you’re deciding between business leasing and salary sacrifice, you’ll first need to know the difference between the two.

Salary sacrifice allows employees to sacrifice a portion of their gross salary, before tax and National Insurance contributions, to drive a lease car. It’s a scheme offered by an employer and can be an affordable solution to choose between exclusive car lease deals.

Business leasing allows employees and employers to lease a car or van through their business. This can be used for both business and personal use, but tax implications will apply.

Salary sacrifice is a non-cash benefit for employees to use exclusively, whilst business leasing is typically used to source a vehicle for business use. Both schemes’ cost is based on the lease term, the agreed annual mileage, and any upfront initial rental. Understanding the difference between the two leasing methods will determine which meets your needs best.

Am I eligible for a car on a business lease?

Business leasing is available to all kinds of businesses, from sole traders to limited companies. Your business eligibility will be determined by passing relevant financial checks and how you’ll use the vehicle. However, there’s no guarantee your business will be eligible, as this will depend on the business’s financial situation and the terms set out by the finance provider.

Who qualifies for a salary sacrifice scheme?

Salary sacrifice schemes are usually available to permanent contract employees, with employers choosing specific requirements such as length of service. If your company already has a scheme already in place, you’ll need to check with them to see if you qualify. However, if you’re a business considering a salary sacrifice scheme, we suggest getting in touch with our team. Synergy can then help you tailor a scheme to match your business and employee needs.

Benefits of leasing a vehicle through your business

There are a number of key benefits to choosing a business lease. Running costs can be greatly reduced as newer cars become more fuel efficient. At the same time, employees get access to comfortable, quiet, and safe business vehicles. Business leasing can also encourage healthy cash flow and makes financial sense. As a business won’t be paying towards ownership, there’s no need to worry about deprecation with the monthly cost treated like rent rather than finance debt.

Benefits of leasing a car through salary sacrifice

Salary sacrifice schemes come with their own unique benefits. For example, employees have access to a great staff benefit, which allows them to source a lease car on their own terms. Often there’s no up-front payment required, and monthly payments are fixed for the duration of the contract. Salary sacrifice leasing also gives employees access to a range of vehicles that can be filtered to suit their individual needs. These include everything from hatchbacks and SUV’s to executive saloons. A scheme like this can also improve a company’s sustainability credentials long-term by encouraging staff to switch to an electric car lease.

Business Leasing vs Salary Sacrifice – the Differences at a Glance

Business leasingSalary Sacrifice
  • Usually used to source a lease vehicle for business use. Exceptions can be made for the company director or management with BIK tax implications applying
  • Lease goes through the business, so the individual won’t make the monthly payments
  • There may be usage restrictions for the lease vehicle
  • Ability to claim back the VAT on the use of the vehicle for business purposes.
  • An employee benefit normally open to everyone (unless specified). Used to source a lease vehicle for private use primarily
  • Lease payments are deducted straight from an employee’s income with no usage restrictions
  • Savings to be made on income tax and National Insurance — treated as a pre-tax benefit
  • Hassle-free motoring for employees: insurance, servicing and maintenance can be included.

Final Thoughts

Deciding between business leasing and salary sacrifice ultimately depends on an individual’s situation. Both are viable options, and an opportunity to source an all-new vehicle. Here at Synergy, we always recommend speaking to an accountant or tax advisor before making a decision. Whichever leasing option you choose, our team is here to support you along the way.