How much do drivers really save on salary sacrifice?

It’s a good question: how much can you save on a car through salary sacrifice?

The glib answer is: a lot. But that needs breaking down a bit.

There are certainly significant savings that can be enjoyed through taking an electric car (EV) salary sacrifice vehicle rather than personally leasing the same car.

Why should this be?

The reason for the savings on salary sacrifice lies in the fact you are funding the lease of the vehicle – not to mention the insurance and the maintenance upkeep of the car – from your pre-tax salary.

So the actual amount you pay in income tax and National Insurance is lowered by the cost of the car:

Your gross pay – car package lease = lower amount to pay on tax and insurance.

For example, if your gross monthly income is £2,500 and the cost of the car package is £500, you only pay income tax and National Insurance on £2,000.

And it’s these tax savings that really add up, even if you do have to pay some company car tax.

But, truly, the amount of company car tax that you pay is very small, because EVs have a low benefit in kind charge.  It can be as little as £7.30 per month.

On the other hand if you decide to lease the same car personally, you are paying for the lease out of your taxed income – the amount once the taxman and the government have taken their share.

Perhaps you’re not quite convinced yet as to why you save money on a salary sacrifice car.

Well, here are some examples to demonstrate the savings that are available to you.

The first is on the popular MG4 hatchback with the saving quoted for a 20% tax payer.

MG MG4 150kW SE EV Long Range 64kWh 5dr Auto

• Monthly gross salary sacrifice (the amount you pay for the car) £540.09
• Income tax saving on the reduced gross salary -£108.02
• NIC saving on the reduced gross salary – £43.21
• BiK tax to pay £14.99

Monthly net sacrifice – £403.85

Compare it to paying for the car on a personal contract hire agreement, which includes the insurance and maintenance wrapped up in the salary sacrifice, which is £587 per month.

Over the three year term, salary sacrifice could save you £8,782.

Quote based on a 3+33 at 5,000 miles per annum 20% tax payer

The second example is for the luxury Lexus SUV, but this time based on a tax payer at the 40% rate of income tax.

Lexus RZ 450e 230kW Direct4 71 kWh 5dr Auto [Premium]

• Monthly gross salary sacrifice (the amount you pay for the car) £1,121.43
• Income tax saving on the reduced gross salary -£448.57
• NIC saving on the reduced gross salary -£22.43
• BiK tax to pay £57.84

Monthly net sacrifice: £708.27

Compare it to paying for the car on a personal contract hire agreement, which includes the insurance and maintenance wrapped up in the salary sacrifice, which is £1,221.55 per month.

Over the three year term, salary sacrifice could save you £18,478.

Based on a 3+33 at 5,000 miles per annum 40% tax payer

As you can see from these quotations, the savings to be made on taking a salary sacrifice car are substantial; in the case of the Citroen it is more than £8,700 over three years and in the example of the Lexus nearly £18,500.

So if your company is offering a salary sacrifice scheme, it really is worth considering it – because you will be saving money on your next car.