Salary Sacrifice - How it Works
Salary Sacrifice - a smart, simple and cost-effective way to finance your vehicle
Salary Sacrifice schemes allow employees to exchange a portion of their gross salary for a fully maintained, company-leased electric car. Because payments are taken before tax, you can save on Income Tax and National Insurance — often making it significantly more cost-effective than Personal Contract Hire (PCH).
The greatest savings are achieved with electric vehicles, and your package can be further enhanced with fully comprehensive insurance and a professionally installed home charger. Everything is bundled into one simple monthly cost, making the switch to electric easy, affordable, and hassle-free.
Salary Sacrifice Eligibility
Many employers set their own eligibility criteria for participation in the scheme. Below is a list of common eligibility and affordability requirements, some of which may be mandated by the vehicle funder or motor insurer.
- Employees may be required to be between 18 and 75 years old
- Employees must hold a valid driving licence for the duration of the lease period
- Employees must be a permanent PAYE employee & have completed their probationary period
- Employees must be permanent UK residents
- Employees' gross basic pay must not fall below the National Minimum Wage or National Living Wage after the salary sacrifice deduction
Already enrolled in our Salary Sacrifice scheme? Access your account portal
How Salary Sacrifice Car Leasing Reduces the Cost of Driving an Electric Vehicle
Salary Sacrifice Leasing allows eligible employees to exchange a portion of their taxable salary for a brand-new leased vehicle over a contract of 24 to 48 months. As the scheme is considered a benefit, HMRC Benefit-in-Kind (BIK) tax applies.
The savings come from the fact that the salary deduction is taken from your gross salary before tax and National Insurance, making it more cost-effective than leasing the vehicle personally. Your quotation will include clear calculations to show exactly how much you could save.
Benefits for the Employer
- Tax efficient, reduce National Insurance contributions
- Attractive benefit, attract & retain the best talent
- Reduce risks associated with 'Grey Fleet' vehicles
- No intital setup fees
- Optional Early Termination insurance reduces risk
Benefits for the Employee
- Save up to 40% in Income Tax & National Insurance
- Drive a new, fully insured Electric or Plug-in Hybrid vehicle
- Full servicing, maintenance & tyres included
- Road Tax included
- No personal credit checks required
Learn how Salary Sacrifice works for employers and employees in this episode of The Lease Guys Podcast. Yorkshire Fleet is joined by tax expert Phil Thompson (Head of Tax at Lloyd Dowson Accountancy) to break down tax savings, eligibility, and setup for electric vehicle schemes.
Salary Sacrifice FAQs
A car salary sacrifice scheme lets an employee give up part of their gross salary in exchange for a brand-new, fully maintained company car — typically an Electric Vehicle (EV) — while reducing their income tax and National Insurance contributions.
- Definition: An employee agrees to give up a portion of their gross salary in exchange for a brand-new, fully maintained company car, typically an Electric Vehicle (EV).
- Key benefit: Because the salary is sacrificed before tax and National Insurance are calculated, both the employee and employer save money.
- Tax efficiency: EVs attract very low Benefit-in-Kind (BiK) tax rates, making this one of the most cost-effective ways to drive a new car.
A Yorkshire Fleet salary sacrifice package bundles the vehicle, maintenance, insurance, and tax into a single monthly payment, so there are no separate bills to manage.
- Vehicle provision: You get a brand-new vehicle of your choice on a contract hire agreement.
- All-inclusive maintenance: The package covers comprehensive servicing, routine maintenance, and MOTs.
- Tyres & breakdown: Replacement tyres due to fair wear and tear are included, along with full UK breakdown and roadside assistance.
- Insurance & tax: Fully comprehensive motor insurance and road fund licence (VED) are usually bundled into the single monthly payment.
Salary sacrifice is generally cheaper and more convenient than a dealership purchase, because it uses gross salary and bundles in costs that dealerships handle separately.
- Wholesale purchasing power: Fleet providers access corporate discounts and manufacturer terms that are unavailable to individual retail buyers.
- Tax savings vs. personal finance: Dealership Personal Contract Purchase (PCP) or personal lease agreements are paid using net (after-tax) income, whereas salary sacrifice uses gross salary, drastically lowering the overall cost.
- Convenience: Dealership packages rarely bundle comprehensive insurance, servicing, maintenance, and breakdown cover into a single tax-efficient payroll deduction.
Reputable salary sacrifice schemes include protection policies that cover early termination, so employees aren't penalised for unexpected life events.
- Protection policies: Reputable schemes feature early termination protection (or lifestyle protection policies) built in or available as an add-on.
- Mitigating risk: These policies protect both the employer and employee against unexpected life events such as redundancy, resignation, long-term sickness, or maternity/paternity leave, mitigating any early termination fees.
Salary sacrifice contracts typically run for 24 to 48 months, with mileage allowances that can be tailored to the driver's lifestyle.
- Flexible terms: Typical contract durations range from 24 to 48 months.
- Tailored mileage: Annual mileage allowances can be customised to suit the driver's lifestyle, usually ranging from 5,000 to 30,000 miles per year, with adjustments possible during the term if driving habits change.
Delivery times depend on whether you choose a stock vehicle or a factory order, ranging from as little as 2 weeks to over 16 weeks.
- Stock vehicles: If you choose a vehicle from physical stock or pre-built pipeline inventory, delivery can often take as little as 2 to 3 weeks.
- Factory orders: Custom factory builds or specialised trim specifications will vary depending on the manufacturer, typically ranging from 8 to 16+ weeks.
At the end of the contract term, Yorkshire Fleet arranges collection of the vehicle, which is then appraised by the funder for any damage or excess mileage beyond the fair wear and tear guide.
- Collection process: Yorkshire Fleet will arrange for the vehicle to be collected, either from the company or employee address.
- Vehicle appraisal: As part of the collection process, the vehicle is appraised by the funder for its condition.
- Excess charges: Any excess mileage or damage that falls outside the BVRLA fair wear and tear guide will be charged back to the employer, and may then be re-charged to the employee, as detailed in the terms of the agreement.