Why salary sacrifice car schemes are worth it

Deciding how to finance your next car is a major decision that you want to get right. With so many options available you could feel spoiled for choice. So, what can a salary sacrifice agreement offer you in addition to the car itself?

You’ll need to be sure a salary sacrifice scheme is right for you – that’s why we’ve created this guide to explain what a salary sacrifice arrangement is, how it works and what benefits you get out of it in addition to a car.

Electric cars have 3% BiK between April 2025-2026, rising by small amounts to just 9% in 2030.

Salary sacrifice cars = bankable tax benefits

If you didn’t have to pay tax on any of the money you earned, you’d be much better off. While salary sacrifice car schemes can’t relieve you of the tax burden for your entire salary, they do offer you the chance to save some of the tax on a portion of your salary.

Salary sacrifice schemes work by allowing employees to trade part of their pre-tax salary for goods or services. In most cases, working out how much you’ll save is as simple as multiplying the amount of salary you’re sacrificing by your tax and national insurance contribution rate.

For example, if you sacrificed £100 of your wage to be paid into your pension each month, you’d save 20% as a basic rate taxpayer and 10% in National Insurance (NI) – a total of £30 per month. For a higher rate taxpayer, it would be 40% and 2% NI or £42 saved in tax.

However, cars work slightly differently. The extent of the tax savings you achieve will depend on the type of car you choose with the maximum saving equivalent to your income tax rate of 20, 40 or 45%.

While you can save most of your income tax and National Insurance when you take a car on salary sacrifice, you do need to pay the Benefit in Kind (BiK) on the benefit you receive.

Electric cars have 3% BiK applied between April 2025-2026, rising to just 9% by 2030. With petrol cars attracting 33% BiK in 2025, rising to 35% in 2030, this means there are considerable savings when choosing an EV on a salary sacrifice scheme.

The key benefits of salary sacrifice

A few years ago, there were some changes to the way in which salary sacrifice schemes worked, which caused some confusion, and created a range of misconceptions.  However, there are so many benefits to salary sacrifice car schemes and so we’ve highlighted some of the key facts below;

1. You can make tax and national insurance savings

Opt for an electric car and from April 2025 to March 2026 you’ll attract a Benefit-in-Kind (BIK) rate of 3% on the amount of salary you sacrifice. In the following tax year your payments will be subject to 4% BIK but you’ll still enjoy a significant reduction in the monthly amount you pay.  Salary sacrifice is certainly the most affordable way to drive an electric car.

Of course, electric cars and those with high emissions are the two extremes and there are plenty of cars in between to choose from, most of which also offer tax savings. A good rule of thumb is that the lower the car’s emissions, the greater the tax saving you’ll make.

Don’t just take it from us, 9/10 of our top ten most popular cars on order are EVs, with 1 being a plug-in hybrid.

Although the government’s tax rules are designed to encourage drivers to choose low emission vehicles, it’s still possible to opt for a large petrol or diesel car with high emissions if that’s your preference.

2. There’s a huge variety of cars

There are hundreds of makes and models that can be found on salary sacrifice schemes. We work with leading UK manufacturers and supply a huge array of cars across pure electric, hybrid, petrol and diesel.

Choose from the smallest city cars, hatchbacks and saloons to estates, SUVs and high-end luxury cars. All come with the latest technology and a range of trim options giving you flexibility over what’s in your new car.

3. You won’t necessarily lose out on a wide range of other employee and state benefits, but it’s worth checking.

Sacrificing part of your salary means your gross pay is reduced which could affect items like pension contributions, life cover payouts, parental leave payments or mortgage applications. However, some organisations calculate employee benefit-related payments using a ‘reference salary’ which ignores the fact that you’ve sacrificed some of your salary. Check with your employer to understand their approach so you can decide, will salary sacrifice work for you and your current circumstances.

It’s also worth knowing that reduced taxable earnings could impact your state pension or any contribution-based government benefits like jobseeker’s allowance or employment and support allowance. Many people will earn more than enough to make sufficient contributions to receive these benefits in full. But, if you’re a low earner, it’s worth understanding the impact that salary sacrifice could have on your entitlement to state support.

4. Salary sacrifice cars do more than save money

Car ownership can be stressful. The cost of MOTs, regular servicing, tyres, repairs and insurance can all mount up, dip into your savings or rack up the credit card.

With car salary sacrifice, all this stress and unexpected cost disappears because your monthly payroll deduction covers the finance for your car plus a complete care package that makes driving super convenient.

This is what’s typically included in a car scheme:

• Insurance and road tax
• MOTs
• Servicing
• Maintenance
• Repairs
• Replacement tyres
• Breakdown cover
• Lifestyle protections for unexpected events like redundancy or long-term sickness
• Home delivery

The best providers also offset your carbon emissions on vehicles with an internal-combustion-engine and for the emissions to charge an EV. This can reduce the carbon footprint of the running of your car. And, as we discuss in the next section, you can also enjoy protections that guard against changes in your personal and financial circumstances.

Salary sacrifice car or buy outright?

Buying outright might seem like the cheapest way to drive a new car but it’s important to make sure you’re considering all of the expenses you might face with your car. Depending on whether you’re opting for a new or used car, there’s the potential for running costs to add up. There’s also insurance and VED, as well as breakdown cover to consider. This could be a considerable amount to find each month even if nothing goes wrong. These expenses can also be unexpected, so it’s important to have a contingency fund when owning a car. With salary sacrifice, there are no surprises, so you don’t need to worry – the running costs and repairs are all covered.

Salary sacrifice car schemes can place your ideal car in your reach.

With salary sacrifice, you don’t need to put down a deposit, so saving for your new car isn’t needed. For most people, budgets are tight which makes saving additional money for a car can be difficult.

Because salary sacrifice car providers at times order large numbers of cars, they secure great manufacturer deals as a result which you can’t access as an individual customer on the forecourt.

And with salary sacrifice offering the chance to make the most of every pound, you could even find you can afford to drive your dream car, not just any old car.

The bottom line

Car salary sacrifice schemes are an extremely valuable benefit for employees with the opportunity for drivers to take advantage of the savings available on electric and low emission cars.

Beyond the financial savings, salary sacrifice car schemes also offer a range of benefits you won’t find elsewhere including comprehensive motoring support packages, emission offsetting* and financial protections.

Choosing the right provider is key to securing the best, market-leading packages that will make the most of your hard-earned money while making driving a hassle-free, convenient experience.

Want to start your salary sacrifice scheme journey?

*Please note, we use carbon offsetting for vehicle tailpipe emissions and grid charging emissions only. We do not offset the carbon footprint to manufacture the vehicle.