Salary Sacrifice Car Schemes Explained

Benefits for Employees and Employers

Salary sacrifice is one of the most popular employee benefits today—and for good reason. By exchanging part of your gross salary for a brand-new car, you can save thousands in tax while enjoying the latest electric vehicles. For employers, it’s a low-cost perk that helps attract and retain staff while supporting sustainability targets.

In this blog, we’ll explain how salary sacrifice car schemes work, the advantages for both employees and employers, and why electric vehicles (EVs) are the ideal choice.

What Is a Salary Sacrifice Car Scheme?

A salary sacrifice car scheme lets employees give up part of their pre-tax salary in return for a fully maintained company car. Because the deduction is taken from gross pay, employees benefit from savings on:

• Income Tax (20%, 40% or 45% depending on tax band)

• National Insurance contributions

• VAT (reclaimed by the employer and often passed on as additional savings)


In practical terms, this can make a car up to half the cost of an equivalent personal lease.

How Does Salary Sacrifice Benefit Employees?

For employees, the advantages are significant:

How Does Salary Sacrifice Benefit the Employer?

Salary sacrifice schemes don’t just benefit employees—businesses gain significant advantages too. Key benefits include:

• National Insurance savings
  Employers can save up to 15% on the amount employees choose to sacrifice.
  
  
• Potential VAT savings
  In some cases, employers may be able to reclaim part of the VAT on leasing costs. This saving can either be retained by the business or passed on to employees to reduce their monthly payments.

• Full tax deductions
  Lease payments can typically be written off against taxable profits, reducing the overall tax burden for the business.
  
  
• Improved recruitment and retention
  Salary sacrifice is an appealing employee benefit that helps attract and retain staff. It’s seen as a valuable perk that costs the company little while boosting morale and job satisfaction.
  
  
• Enhanced sustainability & green credentials
  Providing electric or plug-in hybrid vehicles supports net-zero objectives and can strengthen supply-chain compliance while contributing to sustainability certifications.

How Does Salary Sacrifice Work in Practice?

The process is simple:

1. Set up the scheme
The employer establishes the salary sacrifice scheme with a leasing partner such as Yorkshire Fleet Management.

2. Employees choose their vehicle
Employees select a car from the employer’s approved list, and the leasing provider calculates the net monthly cost after tax savings.

3. Delivery and contract management
The employer arranges vehicle delivery and oversees the contract throughout its term.

4. End of the agreement
At the end of the lease, the car is either collected or replaced with a new one. Yorkshire Fleet Management ensures a smooth, end-to-end experience—from initial quotation through to delivery and beyond.

What Cars Are Popular on Salary Sacrifice?

Salary sacrifice offers the greatest savings on electric vehicles (EVs), but plug-in hybrids (PHEVs) are a strong alternative for drivers who aren’t ready to go fully electric.

Popular EV choices include models like the Tesla Model 3 and Model Y, Audi Q6, and Jaguar I-Pace, with newer brands such as BYD also gaining traction.

PHEVs such as the Skoda Superb, VW Tiguan, and VW Passat remain popular thanks to their longer electric ranges.

Because EVs currently benefit from a very low 2% Benefit-in-Kind (BiK) rate, they tend to be the most cost-effective—and therefore the most common—choice under salary sacrifice schemes.

Things Employers Should Consider Before Setting Up a Salary Sacrifice Scheme

While salary sacrifice can be highly beneficial, employers should be aware of a few important factors:

• Leaver risk

If an employee leaves mid-contract, the business may become liable for the remaining costs. However, vehicles can often be reassigned to other employees, and protection products are available to minimise this exposure.

• Credit exposure

Each business has a set credit limit, and higher-value EVs can impact this more significantly. We work with employers to ensure credit capacity is properly managed and all commitments are accounted for.

• Eligibility rules

Employees cannot sacrifice salary if it would reduce their pay below the National Minimum Wage.

• Workplace culture

If only higher earners qualify, it may create a “haves vs have-nots” dynamic. With clear policies and good communication, these cultural risks can be effectively managed.

Is Salary Sacrifice Here to Stay?

Yes. Salary sacrifice has been part of UK employee benefits for many years—covering pensions, childcare, and cycle-to-work schemes—and the government continues to support it as a way to promote greener choices. With the UK’s ongoing commitment to net-zero targets, EV-focused salary sacrifice schemes are expected to remain a strong, long-term option.

How Can I Set Up a Salary Sacrifice Scheme For My Business?

A salary sacrifice car scheme is an excellent way for employers to help staff access affordable electric and hybrid vehicles while benefiting from tax savings, improved recruitment, and stronger sustainability credentials.

If you’re ready to explore a scheme for your business, get in touch with the team at Yorkshire Fleet. We’ll handle the setup and guide you through the entire process.

Yorkshire Fleet covers everything you need to know about salary sacrifice in the this episode of The Lease Guys Podcast, featuring tax expert Phil Thompson of Lloyd Dowson Accountancy.

If you're interested in setting up a Salary Sacrifice scheme for your business, contact our team today!