How can employees benefit from a salary sacrifice car scheme?
A salary sacrifice car lease scheme is an increasingly popular employee benefit and is being offered by more companies than ever before. By agreeing to ‘sacrifice’ a fixed portion of their salary, employees can choose between a range of hybrid and electric lease deals.
Let’s explore sacrifice car leasing in more detail, answer some commonly asked questions and see how employees can benefit.
Can employees opt in and out of a company salary sacrifice car scheme?
The first thing to know about salary sacrifice leasing is that employees a free to choose a vehicle on their own terms, including mileage and contract length. It’s an optional scheme and offered as part of a benefits package, with the terms of the employee’s contract changing to reflect this non-cash benefit. Once opted into, this entitlement can be reviewed, adjusted, or removed, with the terms of a company salary sacrifice car scheme set out by the employer.
How much can you salary sacrifice for a car?
When searching for a car through salary sacrifice, there is no limit to how much you can spend. However, you’ll need to ensure your salary remains above national minimum wage. It is also worth noting that the amount of savings an employee makes will depend on their overall salary and the lease deal they choose.
What are the benefits of a salary sacrifice car for employees?
The benefits to securing a car through salary sacrifice include:
Reduced income tax and National Insurance contributions
Because a salary sacrifice car lease scheme reduces an employee’s taxable income, they can make savings on Income Tax and National Insurance contributions.
Fixed insurance, maintenance, and other running costs
Driving a hybrid or electric car can help employees save money on rising fuel and running costs. They also come with lower benefit-in-kind tax rates too. Because leasing is a fixed cost option, they can also save money on things like road tax and maintenance.
No deposit required
Salary sacrifice leasing doesn’t require an up-front initial payment, making it a cost-effective alternative to personal or business leasing deals.
Don’t have to worry about selling the car at the end of the lease period
By choosing to lease through salary sacrifice, employees can protect themselves against depreciation. Because they won’t be paying towards ownership, they can simply hand the car back at the end of their lease. There’s no need to worry about resale and they can upgrade to the latest model without having to factor in the depreciation cost.
Are there any disadvantages of a salary sacrifice car for employees?
Whilst a car sacrifice scheme comes with many benefits, there are still some considerations for employees to make. For example, employees need to understand there will be a reduction in their gross salary and should consider if this makes financial sense. It’s also worth considering that not all employees will be eligible for the scheme. This will depend on factors like age or length of service but will be decided by the employer.
Does salary sacrifice appear on my payslip?
After finding the right deal, the employee will agree to a fixed monthly figure to be deducted from their salary. This salary sacrifice will show on an employee’s payslip as a deduction before tax and National Insurance.
Does the employee own the car at the end of a car sacrifice scheme?
At the end of a car sacrifice scheme, the employee may have the option to purchase their car. However, this isn’t a guarantee and will be predetermined by their finance provider. We’d suggest discussing this well before entering a salary sacrifice agreement to understand whether this would be possible or not.
Is salary sacrificing a car worth it for employees?
Salary sacrifice leasing is a great non-cash benefit and a hassle-free way for employees to secure a brand-new car. It comes with exclusive tax savings that can’t be accessed through other finance options. However, a car sacrifice scheme will only be worth it if it meets an employee’s needs, and they can comfortably meet the deducted lease cost. To find out more, get in touch with our business and fleet team today.
“How can employees benefit from a salary sacrifice car scheme?” should be used as a guide only and is subject to change. The cost of salary sacrifice depends on an individual’s tax situation. Tax and NI rates are indicative and subject to change. BIK rates are subject to change from tax year 25/26. Insurance costs are also payable.
