Salary Sacrifice Car Scheme
A salary sacrifice car scheme lets an employee reduce their gross (pre-tax) pay in exchange for the use of a vehicle. Because the deduction happens before tax and National Insurance (NI), employees usually make big saving (up to 60% for EVs) versus a like-for-like personal lease. The car is treated as a Benefit-in-Kind (BiK) for company car tax; Battery Electric Vehicles attract the lowest BiK rates, with Plug-In Hybrids typically higher and rising faster after April 2028.
HMRC: Salary sacrifice car schemes: A guide for employers
How does it work?
Your business partners with a provider (i) to offer eligible cars via payroll.
Employee chooses a car: The gross deduction covers the lease and bundled services.
Package typically includes maintenance, insurance, breakdown and road tax, so most running costs are fixed.
Payroll & compliance: Deductions are taken before tax/NI. Ensure pay never drops below National Minimum Wage and that a contract variation is in place.
(i): Octopus EV, The Electric Car Scheme, Fleet Alliance, Loveelectric or SalSac
Benefits of salary sacrifice car scheme:
- Reduced employer NI Contributions (savings of 13.8% per employee)
- A greener corporate image – supports ESG goals
- Higher employee retention & satisfaction – offering a valuable perk
- Attracting new talent – many employees now prefer workplaces with sustainable benefits
- Corporate Social Responsibility benefits – contributing to lower carbon emissions
Case study: Scottish Power
Cars have collectively reduced carbon emissions by an estimated around 1000 tonnes a year.
The company offers bookable EV charging points at its offices and can support employees with deals on home EV charging installations.