You might have heard of Salary Sacrifice, but how much do you know about it? Put simply, the Salary Sacrifice Scheme allows you to sacrifice a small part of your paycheck in return for your employer providing you with a car. There are a range of benefits to the scheme, including saving money on tax and National Insurance – not to mention, you’ll get to drive the latest models – fully maintained and insured.
So, what is Salary Sacrifice, and how does it compare to car leasing? Find out more about how the scheme works for employees and employers with our guide below, or by visiting our sal-sac dedicated site, salarysacrificemadesimple.com. If you have any questions about Salary Sacrifice, personal or business car leasing, contact us today.
How salary sacrifice schemes work
- Sacrifice part of your ‘before-tax’ salary
- Your employer uses the money to provide you with a car
- You pay less tax
- You drive a new car as a benefit
Salary Sacrifice is a benefit provided by employers. Employees can choose to give up a small amount of their (before tax) gross salary in exchange for goods or services. In this case, a car. Because the amount sacrificed is deducted before tax and National Insurance, the employee pays less tax overall.
Cars available under Salary Sacrifice tend to be EVs. This is because they are more tax-efficient than petrol or diesel cars.
Tax implications for employees and employers
The tax implications of Salary Sacrifice differ depending on whether you’re an employer or an employee. We’ll cover the differences below:
Employees
For employees, driving an EV through the Salary Sacrifice Scheme tends to be cheaper than other car lease options. Here are some of the top benefits for employees using the sal-sac scheme:
- Pay less income tax and National Insurance because your salary is lower
- You pay BIK tax on your Salary Sacrifice car
- EV BIK rates are low, making them cheaper to run than petrol or diesel cars
Employers
And here are some of the salary sacrifice benefits for employers that you can take advantage of:
- Employers save money because they’ll be contributing less in National Insurance on the employee’s reduced salary
- Employers can claim tax relief on lease payments
- Employers have to handle the admin burden and ensure it’s compliant with the HMRC rules
Pros and cons compared to personal leases
Before choosing whether to opt into a Salary Sacrifice scheme, comparing it with personal leasing is a great way to determine whether it’s a good option for you, along with the pros and cons of the scheme. Let’s take a closer look at them below:
Advantages of Salary Sacrifice
Several advantages come with choosing to opt into a Salary Sacrifice scheme, including the following:
- Thanks to tax savings, Salary Sacrifice is a more affordable option than leasing
- Costs including insurance, maintenance, servicing and breakdown cover are often included in the scheme. While you can choose a lease with maintenance included, you’ll still need to pay for insurance yourself in most cases
- There’s no upfront payment needed with Salary Sacrifice
- Salary Sacrifice gives you access to the latest EV models with low running costs
Disadvantages of Salary Sacrifice
So, what are the disadvantages of Salary Sacrifice that you should consider?
- You’re tied to the car by your employer. If you leave a job that pays for your Salary Sacrifice car, your agreement will be terminated, and a fee will be deducted from your final salary.
- Your take-home pay is technically reduced, which could have an impact on loan and mortgage applications.
- Salary Sacrifice Schemes aren’t as flexible as lease deals – you’ll still have to pay an early termination fee
- While Salary Sacrifice might seem like a good option, it’s only available if your employer offers it
Ready to learn more? Submit an enquiry to check your eligibility for Salary Sacrifice and speak with one of our experts, who will guide you through your options and the next steps to getting started.
Step-by-step guide to participating in the Salary Sacrifice Scheme
If you’re an employee looking to take part in the Salary Sacrifice Scheme, here is a step-by-step guide to participating:
- Check eligibility
First, you’ll need to check that your employer offers a Salary Sacrifice Scheme, as not all employers do. If not, have a chat with them and ask if they’d consider setting one up.
- Choose your car
Once you’ve checked your eligibility, you’ll need to choose a car. You’ll be able to choose from a range of models in the scheme, including the latest EVs. The cost shown will include tax savings.
- Confirm salary sacrifice amount
Once you’ve chosen your car, you’ll need to consider how much of your salary will be given up each month to cover it. This is an essential step as you’ll need to decide whether you’re happy with your new salary amount.
- Sign the agreement
Once you’ve considered the amount, signing the agreement changes your contract officially, so you’ll receive a reduced salary.
- Receive the car
Your Salary Sacrifice provider will deliver the car to you. These cars are typically fully insured and maintained, with no additional cost to you.
- Pay through your payslip
The amount you pay for your Salary Sacrifice car comes out before tax and National Insurance, which means you pay less tax on the rest of your salary.
- Return or swap the car at the end
If you leave your current job, your Salary Sacrifice agreement will be terminated, and you may face early termination fees. If you remain in a role with the same company when your Salary Sacrifice agreement ends, you can hand back the car or choose a new model.
Salary Sacrifice: potential savings
The amount you can save through a Salary Sacrifice scheme depends on several factors, including your employer, the scheme provider, and your personal tax bracket. To help illustrate the potential benefits, we’ve created a salary sacrifice calculator that gives an indicative view of how much you could save when leasing a car through a scheme like this.
Below are a few example savings based on some of the UK’s most popular electric vehicles, to give you an idea of how salary sacrifice can impact your take-home pay.
*Based on an annual salary of £50,000
Audi A6 E-Tron
- Monthly rental: £938.37
- Change in monthly salary: –£659.52
- Company car tax payment: -£21.43
- Monthly savings: £257.43
BYD ATTO 3 Comfort
- Monthly rental: £555.53
- Change in monthly salary: -£390.31
- Company car tax payment: -£12.55
- Monthly savings: £152.68
Cupra Born Hatchback V1
- Monthly rental: £547.10
- Change in monthly salary: -£383.90
- Company car tax payment: -£11.88
- Monthly savings: £151.32
Volvo EC40 Plus
- Monthly rental: £1069.22
- Change in monthly salary: -£744.52
- Company car tax payment: -£17.45
- Monthly savings: £307.25
At Car Leasing Made Simple, we can help you find a Salary Sacrifice vehicle to suit your budget. From comfortable coupes to premium SUVs, we offer a range of manufacturers to get you from A to B, whether you’re heading into the office or on a longer work trip.