The Top 5 Benefits of Salary Sacrifice for Employees
Key Insights:
Salary sacrifice allows employees to save 30-60% on any electric car by reducing their pre-tax salary, significantly lowering the monthly cost through tax and National Insurance savings.
The scheme requires no personal credit checks and includes comprehensive protection against unexpected circumstances like redundancy, long-term illness, or resignation after 3 months, eliminating financial risk for employees.
All costs including maintenance, servicing, insurance, and even home charging installation can be bundled into one monthly payment that benefits from tax savings, simplifying electric car ownership.
When considering a new car, the market can feel overwhelming - especially with the growing popularity of electric vehicles and the impending 2030 ban on petrol and diesel cars. Today, there are several ways to acquire a car, including leasing, purchasing, or, if your employer offers it, through a salary sacrifice scheme.
In this article, we will focus on how salary sacrifice works specifically for cars, exploring its benefits for both employees and employers and outlining what’s required to sign up.
How Does Salary Sacrifice Work? A Quick Overview
Salary sacrifice is an HMRC-approved arrangement where you agree to reduce your gross salary in exchange for a beneficial non-cash benefit - in this case, an electric car. Instead of paying for a car from your post-tax income, the cost is deducted from your salary before tax and National Insurance are calculated, resulting in significant savings.
Here's how it works in three simple steps:
Your employer leases an electric car through a provider like The Electric Car Scheme,
You agree to reduce your gross salary by a set amount each month,
The reduction in your taxable income leads to lower Income Tax and National Insurance contributions, saving you 30-60% compared to a traditional car lease,
For example, if you're a higher-rate taxpayer earning £70,000 per year and choose a Tesla Model Y, you could save up to £270 per month through salary sacrifice compared to a standard lease. You can calculate your savings by using The Electric Car Scheme’s quote tool here.
How Does Salary Sacrifice Work For Employees?
When you join a company, your employer will provide a list of available benefits, and it’s up to you to decide which ones suit your needs. Salary sacrifice is an excellent way to save on National Insurance and Income Tax, as mentioned earlier. If you opt to lease a car through salary sacrifice, the payments are deducted from your gross salary (pre-tax), unlike traditional car leases where payments come from your net pay (post-tax).
As an employee, you can choose the vehicle that best fits your driving requirements. Each month, your salary will be reduced to account for the car. You can also bundle in options such as maintenance, breakdown cover, tyres, fully comprehensive insurance and even a home EV charger, allowing you to save on National Insurance and Income Tax for these additional services as well.
The Top 5 Benefits of Salary Sacrifice for Employees
Here are the top 5 benefits of EV salary sacrifice for employees, from price to range of vehicles available, there will be something to please everyone.
Substantial Financial Savings
The most compelling benefit of an electric car salary sacrifice scheme is the significant tax savings you can achieve. By reducing your gross salary before tax, you save on both Income Tax and National Insurance contributions, making electric cars much more affordable.
How The Savings Work
Let's break down a real example using the BYD Seal. The table shows how much someone in the 40% tax bracket would spend if they were to lease the Seal for three years, travelling 10,000 miles per annum.
| How your savings are realised | Cost breakdown |
|---|---|
| Average monthly cost without salary sacrifice | £599 |
| Employee income tax savings | -£239 |
| Employee national income savings | -£12 |
| Average benefit-in-kind tax over term | £59 |
| Final monthly cost | £407 |
| Total monthly savings | £251 |
As you can see, the average monthly cost for the Seal would be £599 per month, but with an EV salary sacrifice scheme in place, this employee would save £251 on income tax and national insurance contributions combined, taking the monthly cost down to £407 per month!
Why The Savings Are So Significant
Tax Efficiency: By paying through salary sacrifice, you're using your pre-tax income. For higher-rate taxpayers, this means saving 40% in Income Tax plus National Insurance contributions.
Low Benefit-in-Kind: Electric vehicles currently enjoy an extremely favourable 2% Benefit-in-Kind tax rate, which is guaranteed until 2025 and will only increase gradually after that. In comparison, petrol cars can have rates as high as 37%.
All-Inclusive Savings: The tax savings apply not just to the car but also to:
Maintenance and servicing,
Insurance,
Road tax,
Breakdown cover,
Home charging installation (if included by the salary sacrifice provider).
Key Considerations
Your actual savings will depend on your tax bracket - higher-rate taxpayers typically save more,
Benefit-in-Kind tax is calculated based on the car's P11D value and your tax rate,
Savings calculations should account for any planned salary changes during the lease period,
The National Minimum Wage requirement must be met after the salary sacrifice deduction.
All-Inclusive Package Benefits
One of the most valuable aspects of salary sacrifice through The Electric Car Scheme is the comprehensive package that simplifies electric car ownership. Instead of managing multiple payments and providers, everything you need is bundled into one convenient monthly payment - all benefiting from the same tax savings.
What's Included in Your Package
Maintenance & Servicing,
All routine servicing and maintenance,
MOT testing when required,
Tyre replacements,
Brake servicing,
Regular health checks,
Insurance & Protection (if you opt for this)
Breakdown cover,
Complete Risk Protection if your employment circumstances change,
No excess fees to pay.
The Convenience Factor
Single Monthly Payment: One simple deduction from your salary covers everything
No Hidden Costs: Transparent pricing with no unexpected charges,
Simplified Admin: No need to manage multiple providers or payments,
Tax-Efficient: All services benefit from salary sacrifice tax savings,
Employer-Backed: No individual credit checks are required.
No Credit Check Required
One of the most significant advantages of salary sacrifice is that you can access a brand-new electric car without undergoing personal credit checks. Since your employer is the one leasing the vehicle, your credit score isn't a factor in the approval process.
How It Works: Traditional Car Lease
Individual credit check required,
Your credit score impacts approval,
Personal financial history reviewed,
Higher rates for lower credit scores,
Individual liability
vs. Salary Sacrifice Through Your Employer
No personal credit checks,
Employer-backed scheme,
Simple eligibility criteria,
Same competitive rates for all employees,
The employer takes on the lease.
Simple Eligibility Requirements
To qualify for the scheme, you only need to meet these basic criteria:
Be a permanent employee,
Earn above the National Minimum Wage after the salary sacrifice,
Have been employed for any probationary period,
Have a valid UK driving licence.
Why This Matters: Financial Accessibility
Access to new electric cars regardless of credit history,
No impact on your credit score,
Same competitive rates for all employees,
No large deposits are required.
Employer Benefits
Simple administration process,
Straightforward eligibility checking,
No complex financial assessments,
Protected through Complete Risk Protection.
Protection & Flexibility
Life can be unpredictable, which is why The Electric Car Scheme includes Complete Risk Protection as a standard offering. This comprehensive protection makes sure you won't face unexpected costs if your circumstances change during your lease.
Immediate Protection:
Redundancy,
Dismissal,
Long-term sickness,
Loss of driving license (medical reasons)
Death
Parental leave
After 3 Months:
Resignation,
Company transfer
What This Means in Practice. Scenario 1: Redundancy
No early termination fees,
No ongoing payments are required,
Hassle-free vehicle return,
No impact on your redundancy package.
Scenario 2: Parental Leave
Protection during reduced pay periods,
Flexible payment adjustments,
Option to continue or return the vehicle,
No penalties for early termination.
Scenario 3: Resignation
After 3 months into your lease:
Protected from early termination fees,
Smooth transition process,
Option to transfer to a new employer if they offer the scheme,
No ongoing obligations.
Cost Comparison: Protected vs Unprotected Lease
Traditional Lease Termination
Early termination fees (typically 50% of remaining payments),
Personal liability for payments,
Impact on credit score,
Complex exit process
vs. The Electric Car Scheme
No termination fees (with qualifying circumstances),
Employer-backed protection,
No personal liability,
Straightforward process.
Environmental Impact & Sustainability
Making the switch to an electric car through salary sacrifice isn't just good for your wallet – it's one of the most impactful steps you can take toward reducing your carbon footprint.
The Impact of Your Switch
Throughout their lifespan, electric cars emit significantly less greenhouse gases and air pollutants compared to petrol or diesel vehicles. When you choose an electric car through salary sacrifice, you're typically saving around 1.5 million grams of CO2 emissions per year compared to driving a petrol car.
Your Daily Contribution to Net Zero
Think about your daily commute: A typical 30-mile round trip in a petrol car produces about 6kg of CO2 emissions. Switch to an electric car, and those emissions drop dramatically. Even better, as the UK's electricity grid continues to incorporate more renewable energy, your car's carbon footprint keeps shrinking without you doing anything.
Financial & Environmental Benefits Combined
The government supports the transition to electric vehicles through favourable tax rates, making salary sacrifice particularly attractive. Currently, electric cars benefit from:
A lower Benefit-in-Kind tax rate compared to petrol or hybrid cars,
Lower road cost tax,
Exemption from Clean Air Zone charges,
Future-Proofing Your Transport
With the UK's commitment to end sales of new petrol and diesel cars by 2030, switching to electric now through salary sacrifice helps you:
Stay ahead of environmental legislation,
Adapt to expanding Clean Air Zones,
Access growing charging infrastructure.
As An Employee, What Can You Do To Take Advantage Of a Car Scheme?
There are several ways you can take advantage of a salary sacrifice car scheme, such as:
Requesting The Scheme At Your Company
It may seem obvious, but as an employee, you can request that your employer offer a car scheme. This can be a valuable initiative for companies, as it boosts employee satisfaction and retention while incurring no cost to the business.
If your employer opts for a salary sacrifice scheme that includes electric vehicles (as many do), even better. An EV salary sacrifice scheme can specifically help the company meet its environmental, social, and governance (ESG) targets, while also contributing to a more attractive and sustainable workplace.
Choosing a Vehicle Through The Scheme
As an employee, the best way to benefit from a car scheme is to make use of it! You can select the car, the lease term, and the mileage, as well as decide whether to include maintenance, servicing, tyres, and MOT in the monthly payments. This is a great way to get into an electric car for less, which often has high upfront costs. You can browse the available cars, based on your tax bracket and lease terms via our quote tool!
Salary Sacrifice vs Car Allowances
When considering salary sacrifice, employees should explore all available options, with car allowances being a popular alternative. A car allowance is a sum of money provided to employees by their employer to be used towards the cost of purchasing or leasing a vehicle. The employer covers the cost of using the vehicle for work-related purposes. Unlike salary sacrifice, a car allowance is added to the employee's salary and is subject to income tax and National Insurance contributions.
Below is a comparison between the two choices that should be carefully evaluated before making a significant financial decision, such as leasing an electric vehicle.
| Salary Sacrifice Benefits | Car Allowance Benefits | |
|---|---|---|
| Tax Efficiency: Salary sacrifice is a great way to save on income tax and NI, making the cost of an electric car more accessible. | Flexibility: Employees have the freedom to choose any vehicle and are not limited to a specific selection. | |
| Simplicity: The scheme provider and employer take most of the hassle out of leasing a car for the employee. Employees can also bundle everything (from a home charger to breakdown cover) into the monthly lease cost. | Control Over Costs: With a car allowance, employees can shop around for the best deals and manage their vehicle-related expenses. | |
| No individual credit checks: As the employer is leasing the vehicle, the employee is not subject to a check on their finance. | Additional Income: The allowance is added to the employee's salary, which can be advantageous for those who already own a vehicle or have lower transportation costs. |
How To Decide If Salary Sacrifice Is Right For You
Salary sacrifice is worth it for those who want to get a car and save on income tax and National Insurance. However, it is a financial agreement and there are some instances where it may not be right.
Salary sacrifice will be right for you if:
You want to save money: By paying for your lease through pre-tax income, you can reduce your income tax and National Insurance contributions.
You value convenience: With everything bundled into one monthly payment - such as maintenance, insurance, breakdown and insurance cover - it simplifies the overall car ownership experience.
You have stable employment: Salary sacrifice agreements are long-term commitments (usually 2-3 years), so it’s ideal if you feel secure in your job and earn above the National Minimum Wage!
You’re interested in an electric vehicle: With lower Benefit-in-Kind tax rates for EVs, the savings are even greater, making this an affordable way to transition to electric driving.
Salary sacrifice may not be suitable for employees earning less than the minimum wage or those with variable pay. It’s important to ensure you can afford the monthly payments for the car. Additionally, you should consider whether you expect to remain with the company for the duration of the lease - if not, committing to a salary sacrifice car scheme may not be the best option.
The Electric Car Scheme is an easier and hassle-free way of offering salary sacrifice electric cars to employees. The salary sacrifice company you choose should ensure there is no significant risk in the way the scheme is set up. They should also help you with reporting, benefit calculations, HMRC reporting, accounting and payroll instructions.
How Does Salary Sacrifice Work For Employers?
Many employers assume setting up a salary sacrifice scheme for cars involves a lot of work or a high amount of risk, but with The Electric Car Scheme, this isn’t the case. As an employer, here’s what you can expect if you sign up to The Electric Car Scheme as your provider:
Register your interest and talk with one of our product specialists to understand how this would work in your business.
One of our product specialists will handle the scheme set-up and launch, ensuring a hassle-free process for you.
Then, we will assign a dedicated Customer Success Manager to support your business with the launch of the scheme - this includes employee webinars, demo days, promotions and more.
Once your scheme is launched, our EV Specialist and Customer Success Teams will regularly be in touch to ensure your scheme is an ongoing success.
Our pricing is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, and are inclusive of Maintenance and Breakdown Cover. The Electric Car Scheme’s terms and conditions apply. All deals are subject to credit approval and availability. All deals are subject to excess mileage and damage charges. Prices are calculated based on the following tax saving assumptions; England & Wales, 40% tax rate. The above prices were calculated using a flat payment profile. The Electric Car Scheme Limited provides services for the administration of your salary sacrifice employee benefits. The Electric Car Scheme Holdings Limited is a member of the BVRLA (10608), is authorised and regulated by the FCA under FRN 968270, is an Appointed Representative of Marshall Management Services Ltd under FRN 667174, and is a credit broker and not a lender or insurance provider.
Last updated: 19.02.25
