Salary sacrifice: How your staff can save up to 40 per cent on car lease costs
Company cars for non-essential drivers used to be such a great perk, until the financial advantages of having what was largely a ‘free’ car were slowly eroded by increased taxation. Over time, these ‘perk’ cars have largely been replaced with car allowances.
The way the salary sacrifice scheme works is simple: staff simply choose a car, usually an electric vehicle (EV), and they pay for the lease costs from their gross salary, which means before PAYE taxation and national insurance contributions.
This means that staff can save up to 40 per cent on the cost of their car lease because they are not paying PAYE on the money used to pay for it.
The salary sacrifice scheme means the lease car supplied is, technically, a company car, and therefore the employee will be taxed for this benefit in kind at a very low rate, currently 3 per cent for an EV in the 2025/2026 financial year.
The scheme will include maintenance and insurance at a fixed cost for the whole period of the lease, so all the user needs to worry about is charging the vehicle up.
Many salary sacrifice scheme providers can also include the cost of a home charger in the lease – spreading the cost of this fairly significant outlay.
Some scheme providers have now started to offer salary sacrifice schemes for used cars, offering even greater savings to members of staff.
The salary sacrifice route for cars means staff can access brand new, insured and maintained cars for as little as £245 per month (net effect).
This low cost of what is effectively a company car can increase staff morale as well as their bank balance. And that morale boost can also benefit their employer in better attitudes at work and higher staff retention rates.
On top of this, there is an improvement in risk management for an employer’s staff driving on business, as they are driving new, safely maintained and efficient cars.
Salary sacrifice schemes can also help with a business’s drive to net zero as they can dramatically reduce Scope 3 emissions.
A good provider will be able to offer an online platform for drivers to choose and price their salary sacrifice lease. This can include automated document flows which will significantly reduce the administrative burden for the employer.
It’s important for employers to be careful that staff do not drop below minimum wage thresholds when they choose a car. But a good platform will help protect against this by not making vehicles available that could take a member of staff below this threshold, based on their salary.
The overall impact of salary sacrifice schemes for what are effectively company cars results in happier staff paying less tax, and all at no financial cost to the employer.