Car Leasing vs. Salary Sacrifice – How does it work?

If you want a new car, but you don’t want to have to spend a lot of money up front to purchase it outright, then you may well be considering using a finance agreement instead. If your company offers a salary sacrifice car benefit scheme, then you probably have questions on how this works, and if it is better for your finances to use salary sacrifice, or a more traditional car lease instead?

What is a Car Lease?

Car leasing is a way of paying for a car over a period of time, rather than buying it upfront. You can lease a new car, or a used one. Importantly, with a car lease, unlike Personal Contract Purchase or Hire Purchase, you will never actually own the vehicle. It’s easier to see it as a long-term rental, as when the agreement ends, the car goes back to the provider, with no option to buy the car.

How does Car Leasing Work?

Leasing a car means that you will pay a regular monthly amount for the agreed term of the contract. How much you pay obviously depends on the value of the car you choose, how many miles you will do and the length of time you want it for, but it can also be affected by the size of the ‘initial payment’ that you make at the start of the lease.

This ‘initial payment’ is an amount of money that you have to pay at the beginning of your lease, and usually, it’s the equivalent of between 1 and 6 months of payments. In general, the more you pay in this initial amount, the less you will pay monthly for the rest of the contract. It’s important to remember that this payment is not a deposit, and you won’t get the money back at the end of your lease.

What is Salary Sacrifice?

Like car leasing, with a salary sacrifice car scheme, you pay a set amount of money each month in exchange for a brand-new car.

Unlike leasing, salary sacrifice comes with a host of benefits that make the car more affordable for you on a monthly basis. There are no upfront payments or deposits and after the initial exclusion period, there is no charge for early termination of the agreement if you resign or are made redundant.  At the end of the agreement with Tusker, you can hand the car back, or even buy it from us if you want.

How does Salary Sacrifice work?

Just like the Cycle to Work schemes, or childcare vouchers, with salary sacrifice car schemes, you sacrifice a fixed amount of your salary each month in exchange for a brand-new car. The amount is taken before income tax and National Insurance, so you and your company can make considerable savings. Not only that, but with Tusker, the set monthly amount includes fully comprehensive car insurance, road tax, breakdown cover, MOT, maintenance, replacement tyres and even accident assistance.

One difference between a lease and salary sacrifice to consider is that with salary sacrifice, you will have to pay company car tax, known as Benefit in Kind tax, on your car. The amount of tax you’ll pay on your company car will depend on a number of things. These factors include how much you earn annually, the CO2 emission bracket of the vehicle and the value of the car. The great news is that if you choose a car that is hybrid or electric, this tax will be very low.

So, in conclusion, if you are looking to drive a brand-new car without the admin, while also saving money on your tax and national insurance, then a salary sacrifice scheme could be the perfect solution for you. If you don’t know if your company offers this, then speak to your HR manager to find out more.