Salary Sacrifice Car Schemes: The Ultimate Guide

Salary sacrifice car schemes are a highly attractive employee benefit, allowing employees to drive a brand-new car while saving on tax and National Insurance (NI).

With the increasing focus on sustainability and the shift to electric vehicles (EVs), these schemes offer a unique opportunity to drive cutting-edge, environmentally friendly cars at reduced costs. This guide explores how salary sacrifice car schemes work, their benefits, and why Battery Electric Vehicles (BEVs) and Plug-in Hybrid Electric Vehicles (PHEVs) offer the greatest savings.

What is a Salary Sacrifice Car Scheme?

A salary sacrifice car scheme is an arrangement where an employee agrees to reduce their pre-tax salary in exchange for the use of a vehicle. This reduces the employee’s taxable income, resulting in savings on Income Tax and National Insurance contributions. The scheme can cover petrol, diesel, hybrid, and electric vehicles; however, BEVs and PHEVs provide the most significant financial advantages due to lower Benefit-in-Kind (BiK) rates.

How Does It Work?

• Employer Partnership: Your business partners with a leasing provider, such as Fleet Alliance, to offer a wide range of vehicles through salary sacrifice.
• Employee Choice: Employees select a vehicle from the available options, with payments deducted directly from their gross salary.
• Comprehensive Packages: This will include maintenance, insurance, road tax, and breakdown cover, for all-inclusive driving.

“The scheme has been really easy to use. There was loads of choice.” comments salary sacrifice drive Hannah O’Shea from Optivet Referrals, who has taken delivery of an MG 4.

Why BEVs and PHEVs Offer the Greatest Benefits

While salary sacrifice car schemes apply to all vehicle types, choosing a BEV or PHEV maximises your savings. The UK government incentivises the switch to electric through favorable tax rates:

• BEVs: Enjoy BiK rates as low as 2%, locked in until April 2025, with modest increases thereafter.
• PHEVs: Offer reduced BiK rates compared to petrol or diesel, provided they meet CO2 emission thresholds.

By opting for a fully electric or plug-in hybrid car, employees can enjoy significantly lower monthly costs while supporting their personal and company’s sustainability goals. It really is a win-win.

The government’s 2035 target to phase out petrol and diesel cars makes transitioning to electric inevitable, so salary sacrifice is a great, cost-effective, future-proofing strategy.

Key Benefits of Salary Sacrifice Car Schemes

For Employees:

• Tax and NI Savings: Lower your taxable income while driving a brand-new car.
• All-Inclusive Convenience: Maintenance, insurance, and other running costs are covered, simplifying car ownership.
• Affordable Access to EVs: BEVs and PHEVs become more affordable, offering premium models at lower out-of-pocket costs.
• Sustainability: Transitioning to an EV reduces your carbon footprint and supports more sustainable practices.

For Employers:

• Cost-Neutral Employee Benefit: No upfront costs, with potential National Insurance savings for the employer.
• Sustainability Targets: Aiding fleet electrification helps meet corporate ESG goals.
• Attraction and Retention: Enhances employee satisfaction and positions the company as forward-thinking and environmentally conscious.

Important Considerations

• Impact on Take-Home Pay: A reduced gross salary means a slightly lower pension contribution and statutory benefits. However, the savings typically outweigh these impacts.
• Eligibility: Salary sacrifice cannot reduce an employee’s pay below the National Minimum Wage.
• Early Termination Costs: Exiting the scheme before the lease ends can incur fees, but we can offer a range of early exit protection procedures when to an employer when the scheme is being set-up.

How Fleet Alliance Can Help

Fleet Alliance offers a seamless salary sacrifice scheme that prioritises EVs, helping businesses and employees unlock maximum savings and environmental benefits. Our comprehensive packages ensure smooth operation, covering everything from maintenance to insurance, as well as market-leading technology to access the scheme.

A short-demo of award-winning salary sacrifice portal is provided below.

Get Started Today – Transitioning to a salary sacrifice scheme with Fleet Alliance is easy. Contact us to learn more about how you, and your employees or colleagues, can drive an electric vehicle and access huge savings in the process now.

For further details, visit our Electric Car Salary Sacrifice page.