Are Salary Sacrifice Car Schemes Worth It?

With up to 40% savings in tax thanks to salary sacrifice schemes, many are taking notice of its offerings. But are salary sacrifice car schemes really worth it?

Are Salary Sacrifice Car Schemes Worth It?

1 in 4 doesn’t think the idea of salary sacrifice is a positive one. Are they right to think so? Or does the term ‘sacrifice’ raise brows for no good reason?

Let’s dive deeper and determine whether salary sacrifice car schemes are truly worth it.

Is Electric Car Salary Sacrifice worth it?

When it comes to electric vehicles, salary sacrifice is a no-brainer. Here’s why:

• Low running costs: EVs have lower maintenance and fueling costs than traditional internal combustion engine (ICE) vehicles.
• Low Benefit-In-Kind (BIK) Tax: EV drivers benefit from a mere 2% BIK tax due to their low CO2 emissions. For example, a Tesla Model Y with a value of £30,000 incurs just £600 annually in BIK tax. Compare this to a diesel car’s 36% rate, which can amount to £11,100 a year.
• Congestion Charge Exemptions: EVs are typically exempt from congestion charges, saving drivers up to £4,562.50 annually.

On top of these financial perks, EV drivers help reduce their direct carbon footprint, creating a win-win for both the wallet and the environment.

When are Salary Sacrifice Car Schemes worth it?

Now that you understand the benefits of EVs under salary sacrifice, let’s examine when these schemes shine for both employees and employers:

1. New Car for Less

If you’re looking for a brand-new car, salary sacrifice schemes provide significant savings. EVs, in particular, cost far less through this arrangement than outside it.

2. Tax and National Insurance Savings

Employees enjoy reduced tax and National Insurance (NI) contributions due to salary adjustments. Employers also pay lower NI contributions for participating employees.

3. Employee Appreciation and Loyalty

Providing access to a salary sacrifice scheme demonstrates employee appreciation. A valued workforce is more loyal and productive—reducing turnover and boosting morale.

4. Lower Company Car Tax

Electric cars are not only cheaper to run but also attract significantly lower company car tax rates than petrol or diesel equivalents.

5. Hassle-Free Payments

Salary sacrifice car leases offer fixed monthly payments, making budgeting simple. These payments often include servicing, maintenance, and road tax—providing convenience and peace of mind.

6. Corporate Discounts

Vehicles leased through these schemes often benefit from corporate discounts, reducing costs for both employees and employers.

When are Salary Sacrifice Car Schemes not worth it?

While these schemes provide numerous advantages, they aren’t for everyone. Let’s look at some scenarios where salary sacrifice might not be ideal:

1. Employee Departure

If an employee leaves mid-contract, the employer may be left to cover the remaining costs. Early Termination Protection (ETP) can help mitigate this risk by covering unexpected expenses.

2. Reduced Pension Contributions

Since salary sacrifice reduces gross income, it may also decrease pension contributions. Employees should evaluate this trade-off carefully.

3. Preference for ICE Cars

If you’re committed to traditional petrol or diesel vehicles, salary sacrifice schemes might not provide the same benefits. Leasing or financing is often a better alternative for ICE cars.

4. Desire for Ownership

Cars obtained through salary sacrifice are leased, not owned. At the end of the agreement, employees must return the vehicle and opt for another if they wish to continue in the scheme.

5. Low Income Threshold

Employees near the National Minimum Wage may not qualify, as the scheme’s deductions could lower their income below the legal threshold.

6. Restricted Mileage

Salary sacrifice agreements typically include annual mileage limits (e.g., 5,000–10,000 miles). Exceeding this limit incurs additional costs, making the scheme less suitable for unpredictable driving patterns.

Are Salary Sacrifice Car Schemes worth it?

After weighing the pros and cons, here’s the bottom line:

For Employees: If you’re looking to go electric, enjoy tax savings, and don’t mind leasing, salary sacrifice schemes are an excellent option. The financial and environmental benefits are substantial.

For Employers: Offering these schemes can boost employee retention, attract new talent, and enhance your company’s green credentials.

However, if you prefer vehicle ownership, need an ICE car, or have unpredictable financial or driving needs, salary sacrifice may not be the best fit for now.