When comparing job offers, salary is only part of the picture. Employee benefits can make a significant difference to your overall package, and one option offered by some employers is a salary sacrifice car scheme.
These schemes allow employees to give up part of their salary in return for the use of a car, usually supplied through a leasing provider. They have become particularly associated with electric vehicles because low-emission company cars can receive favourable Benefit-in-Kind tax treatment.
However, the amount you could save depends on the vehicle, your salary, tax position and the terms of your employer’s scheme. There are also potential drawbacks to consider before signing up.
In this guide, we’ll explain how salary sacrifice car schemes work, the costs and tax considerations involved, and what to check before deciding whether one is right for you.
For more advice on understanding vehicle costs and what affects a car’s worth, visit our Car Valuation Guidance hub.
What Is Salary Sacrifice?
Salary sacrifice is an arrangement where an employee agrees to give up part of their cash salary in return for a non-cash benefit provided through their employer.
Examples can include workplace pension contributions, Cycle to Work schemes and, where offered by an employer, the use of a car.
With a salary sacrifice car scheme, the employee gives up an agreed amount of salary in return for the use of a vehicle, usually supplied through a leasing provider.
The tax treatment depends on the benefit and the vehicle involved. Since changes introduced in 2017, many benefits provided through salary sacrifice no longer receive the same Income Tax and National Insurance advantages they once did. However, cars producing no more than 75g/km of CO₂ are treated differently under the optional remuneration rules, which is one reason low-emission and electric cars feature prominently in salary sacrifice schemes. GOV.UK
The vehicle can still create a taxable company-car benefit, so the actual cost to an employee depends on factors including the car’s value, CO₂ emissions and their individual tax position.
How Does a Salary Sacrifice Car Scheme Work?
A salary sacrifice car scheme allows an employee to give up an agreed amount of gross salary in return for the use of a vehicle provided through their employer’s scheme.
The employer normally works with a leasing or salary sacrifice provider, and the employee chooses from the vehicles available through that scheme. The agreement will usually run for a fixed period with an agreed annual mileage allowance.
Depending on the scheme, the monthly package may include:
- Vehicle lease payments
- Vehicle Excise Duty where applicable
- Servicing and maintenance
- Breakdown cover
- Tyres
- Insurance, where included by the provider
The agreed salary sacrifice reduces the employee’s contractual cash salary. However, the car is normally treated as a company-car benefit for tax purposes, so Benefit-in-Kind tax may also be payable depending on the vehicle.
Electric cars can be particularly attractive because zero-emission company cars currently have a relatively low Benefit-in-Kind percentage compared with higher-emission vehicles. For the 2026/27 tax year, the appropriate percentage for a zero-emission company car is 4%.
You do not normally own the vehicle. At the end of the agreement it is generally returned to the leasing provider, subject to the particular scheme’s terms, mileage limits and condition requirements.
How Much Does It Cost?
The monthly cost of a salary sacrifice car depends on the vehicle you choose and the terms of your employer’s scheme.
Factors that can affect the cost include:
- The make and model of the vehicle
- The length of the agreement
- Your annual mileage allowance
- Whether insurance is included
- Servicing and maintenance included within the package
- The vehicle’s Benefit-in-Kind tax treatment
Your employer or scheme provider will normally show the amount of salary being sacrificed alongside the estimated tax implications and the services included within the package.
It’s important to compare the overall cost, rather than looking only at the reduction in your take-home pay. Check what is included, any mileage limits, potential end-of-contract charges and what happens if you leave your employer before the agreement ends.
Salary sacrifice can work out competitively for some employees, particularly for certain electric cars, but it isn’t automatically cheaper than buying or financing a vehicle privately. The result depends on the car, the scheme and your individual circumstances.
If you’re comparing salary sacrifice with other ways of getting a car, understanding how car finance works can also help you compare the different options and costs involved.
What Are the Benefits?
Salary sacrifice car schemes can offer several advantages, although the value of those benefits depends on the vehicle, the scheme and your individual circumstances.
Convenient Monthly Package
Many schemes combine the vehicle lease with costs such as servicing, maintenance, breakdown cover and sometimes insurance. This can make motoring costs easier to budget for.
Access to a New Vehicle
Salary sacrifice schemes usually provide access to new cars without requiring the employee to arrange a conventional purchase or personal finance agreement. The range available will depend on the employer and scheme provider.
Potential Tax Advantages for Electric Cars
Electric cars can be particularly attractive through salary sacrifice because zero-emission company cars currently benefit from a relatively low Benefit-in-Kind percentage. As we covered above, the appropriate percentage for a zero-emission company car is 4% for the 2026/27 tax year.
The actual saving will depend on your salary, tax position, the vehicle and the terms of the scheme, so it’s important to look at the figures provided for your individual circumstances.
If you’re considering an electric vehicle through a workplace scheme, it’s also worth looking beyond the tax treatment and comparing the everyday costs. Our guide to whether electric cars are cheaper to run than petrol cars looks at charging, servicing and other running costs.
Servicing and Maintenance May Be Included
Many schemes include routine servicing and maintenance within the monthly package. This can reduce the number of separate motoring bills you need to budget for, although you should check exactly what your particular agreement covers.
Are There Any Drawbacks?
Salary sacrifice can be attractive, but there are several things worth considering before committing to a scheme.
Your Contractual Salary Is Reduced
Because you agree to give up part of your salary, your contractual cash pay is reduced. Depending on how your employer and other organisations calculate benefits, this could potentially affect things linked to salary, so check the implications with your employer before signing an agreement.
Leaving Your Employer Early
Salary sacrifice car agreements normally run for a fixed period. If you resign, are made redundant or otherwise leave your employer before the agreement ends, there may be early termination costs or specific arrangements for returning the vehicle.
Some schemes provide protection for certain circumstances, but this varies between providers. Check the early termination terms carefully.
Mileage and Vehicle Condition
As with other vehicle leases, agreements normally include an annual mileage allowance. Exceeding it may result in additional charges when the car is returned.
You may also be charged for damage that falls outside the leasing provider’s acceptable fair wear and tear standards.
You Don’t Own the Car
Salary sacrifice normally provides the use of a vehicle rather than ownership. At the end of the agreement, the car is generally returned to the leasing provider rather than becoming yours.
If owning a vehicle outright is important to you, that distinction is worth considering when comparing salary sacrifice with buying or financing a car yourself.
Should You Consider a Salary Sacrifice Car Scheme?
Whether a salary sacrifice car scheme makes sense will depend on your circumstances, the vehicle you choose and the terms offered by your employer.
It may be worth considering if you want to drive a new car, prefer having several motoring costs bundled into one monthly arrangement and have access to a competitive scheme through your employer. Electric cars can be particularly appealing because of their current Benefit-in-Kind tax treatment.
However, compare the complete cost with your other options rather than focusing solely on the apparent reduction in your monthly take-home pay. Consider the length of the agreement, mileage allowance, what is included, potential early termination charges and the fact that you won’t normally own the vehicle at the end.
Before committing, ask your employer or scheme provider for a clear breakdown of the salary sacrifice, Benefit-in-Kind tax and any other costs that could apply. This will give you a much better basis for deciding whether the scheme works for you.
Value Your Current Car Before Leasing
If you’re considering a salary sacrifice car scheme, you may no longer need your current vehicle. Knowing what that car is worth can help you understand your overall financial position before making the change.
Your car’s value can be influenced by factors including its age, mileage, condition, specification and service history.
Before committing to a new arrangement, you can use jamjar to value your current car and get a clearer idea of what it could be worth.