July 19, 2023
If your company offers a salary sacrifice car scheme then you probably want to learn more about what it is, the benefits to you and the drawbacks to be mindful of. We’ve put these together into an easy to read article, so you’ve got all the information to hand in one place.
What is a Salary Sacrifice Car Scheme?
A salary sacrifice is essentially when you trade a portion of your pre-tax salary for a benefit. In this article, we’ll focus on salary sacrifice car schemes as that’s our area of expertise but your company may also offer salary sacrifice healthcare, gym membership or childcare schemes.
When you take a salary sacrifice scheme it will usually be a car that is leased by your employer and then provided to you to use. You’ll usually be able to choose the specific car that you want, within your salary sacrifice budget, and this will be solely yours to use as you want.
Electric Car Salary Sacrifice
You will most commonly see salary sacrifice schemes available on electric vehicles (EVs) as they offer drivers the best value for money. Additionally, there are better alternative ways for businesses to offer employees petrol or diesel cars which is why a lot of companies will now only offer EV salary sacrifices because of this.
One of the biggest advantages of having an EV through a workplace scheme is that the amount you pay in benefit in kind (BIK) tax is much lower. The government is currently offering BIK rates of 2% on electric models compared with 14 – 22 % on petrol or diesel models.
If you’re looking at a salary sacrifice scheme we’d recommend going for an electric model, even if petrol, diesel or hybrids are offered.
Benefits of Taking a Salary Sacrifice Car
There are plenty of benefits to taking a salary sacrifice car. You’ll get a new car for less money, and this can often be a better spec of model than if you were looking to purchase outright. There will be a set monthly cost for the car, which makes it easier to budget for and will usually include insurance, maintenance and breakdown assistance.
A lot of lease providers or dealers may provide corporate discounts to businesses with multiple vehicles that you can benefit from, getting a better model or cheaper price.
Another big benefit of taking a salary sacrifice vehicle is that it’s an easy way to get a new vehicle without having to go through the financial credit checks you would if you financed it through a personal lease or purchase agreement.
When Shouldn’t You Take Part in a Salary Sacrifice Scheme?
There are a few circumstances which could make a salary sacrifice the wrong choice for you and we want to highlight some of these in case any apply for you.
Firstly, if you expect to see a change in your employment in the next few years. This might be a case of changing employers, or even just your role within the business that could have an impact on your salary and benefits. It also includes events like going on parental leave, reducing your hours from full to part-time or similar amendments that impact your wages or your benefit entitlement.
Similarly, if you expect a change in your life that affects your vehicle needs. The most obvious example of this is when you start or expand a family, as your space and passenger needs will change. If you are planning for a change that will require a different vehicle then salary sacrifice might not be the right choice for you. As most salary sacrifice vehicles are lease vehicles you’ll usually be tied to a contract length which will be between two and four years.
It’s not just big life changes that might affect your vehicle needs but also if you need more flexibility generally. When you take on a company car benefit, including a salary sacrifice, you’ll usually be committed to one specific vehicle for a set period of time so if your car needs are often changing then a salary sacrifice scheme might not be the best option for you.
Another aspect to be mindful of is that while the vehicle is yours to use you do not own it, and there is generally not the option to purchase it. With a lease vehicle you’ll need to return the car in the same condition as it arrives which means that you may not be able to make any modifications, such as retroactively adding integrated Bluetooth systems, window tinting or paint decals without having to repair any damage they cause. If these are changes that you want to be able to make to your vehicle, or you just prefer owning your own car then a salary sacrifice won’t be the right choice for you.
Most will also come with a mileage allowance and you will need to keep to this, you’ll usually be involved in deciding the right mileage for you. If you think that you won’t be able to keep to a mileage allowance or it is unsuitable for your needs then you might want to consider a different type of car benefit such as a car allowance that does not restrict your mileage.
If you’re interested in a petrol or diesel car then we would recommend a different type of car benefit as well. This is because with the deduction from your salary and tax you’ll need to pay there isn’t a financial advantage to getting a car through a salary sacrifice scheme and you’d be better looking at alternative ways of funding it.
Those in lower income brackets or working reduced hours will also need to be mindful of the amount of salary they are able to sacrifice, as you are not legally able to be below the national minimum wage after it is taken.
Is a Salary Sacrifice Car Worth It?
The answer to this will be entirely based on your individual circumstances and needs from your new car.
We think there are four key questions you should ask yourself when deciding if a salary sacrifice car is worth it for you.
1. Is an EV the best fuel type for you?
2. Are you expecting to make any employment or life changes in the next couple of years?
3. How much of your salary can you afford to sacrifice and how does this compare to your current car expenditure?
4. Do the vehicles you’re being offered via the salary sacrifice scheme meet your needs?
If your company has partnered with Wessex Fleet to offer salary sacrifice EVs then our team is always available on 01722 322 888 to discuss how it could work for you and answer any questions you may have.
When is a Salary Sacrifice Car Not Worth It?
We’ve already mentioned a few reasons why you might not want to take part in a salary sacrifices but these could also be seen as reasons for the salary sacrifice scheme is not worth it for you. These include:
- The car is tied to your employer – if you leave or amend your contract you may be without a car
- If you need a petrol, diesel or hybrid vehicle
- Those on lower income who don’t have as much room for a salary sacrifice
Wessex Fleet Salary Sacrifice Scheme
Here at Wessex Fleet we have a dedicated salary sacrifice team that are on hand to answer any questions you may have and support you through your salary sacrifice journey from start to finish.
If you or your company would like to learn more about what we offer then take a look at our salary sacrifice page or get in touch on 01722 322 888.
Salary Sacrifice FAQs
How Much Salary Can I Sacrifice for a Car?
There is no limit on how much of your salary you can sacrifice for a car. However, you’re not legally able to go below the national wage limit, so you cannot sacrifice an amount that will take you below this. You’ll also want to be mindful of your other expenditure needs and how much salary you will need available for this.
Are Salary Sacrifice Cars a Taxable Benefit?
Yes, you will pay a benefit in kind (BIK) tax on a salary sacrifice car. However, you won’t pay income tax or national insurance contributions on the amount that is deducted for your car as this is done pretax, which can work out cheaper overall for you.
What’s the Best Car for a Salary Sacrifice?
The best type of car to get on a salary sacrifice is an electric one. The specific model that is best will depend on your needs, but we’ve rounded up our top five pick for 2023 that you might want to take a look at.
What’s Included with a Salary Sacrifice Car?
The specifics will depend on your company’s offering but generally a salary sacrifice vehicle will include:
- The cost of the vehicle hire
- Fully comprehensive insurance, including for business lease
- A maintenance package (including servicing, tyres and MOTs)
- Breakdown and accident management
How Does Insurance Work on Salary Sacrifice Cars?
Most companies will include insurance as part of the salary sacrifice arrangement. This will be a policy in the employer’s name but will cover you as the driver and can usually be tailored for your individual needs.
Your fleet manager should be able to provide you with a more detailed breakdown on your insurance cover.
How Does Servicing and Maintenance Work on Salary Sacrifice Cars?
A lot of companies will also include servicing and maintenance as part of their agreement and you’ll simply need to contact your fleet manager to arrange any necessary work. This may vary between companies though and we’d recommend speaking to your fleet manager before you agree to a salary sacrifice car so you fully understand yours and the business’ responsibilities for the vehicle.
Will Salary Sacrifice Cars Still Have a Warranty?
Usually, yes. Most salary sacrifice cars will be lease vehicles which are brand new cars and come with their warranty.
Something to be mindful of is that if you’re on a four year lease deal the warranty might not last that long, as some end at three years.
Enjoyed this article? Read more of our latest blogs below:
- What Maintenance Should I Do on a Company Car
- The Three Biggest Fleet Expenses
- Excess Mileage Charges in the UK
- Can I Drive a Minibus?
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