Track mileage automatically
Get started
25 September 2023 - 2 min read

Salary sacrifice car scheme

The salary sacrifice car scheme (also known as a salary exchange) in the UK is an arrangement that employers may make available to employees, where part of employees’ pre-tax salary is exchanged for other benefits, usually non-cash items.

We have written an extensive article about salary sacrifice car schemes for our HMRC mileage guide with updated information. It includes in-depth information about the tax implications and the benefits of choosing an electric car.

Salary sacrifice and leasing a car

As an employee, you can sacrifice a fixed amount of your salary each month in exchange for a new car. The sacrificed sum is taken pre-taxation, so you save on income tax and NI contributions when buying a car through your employer.

A salary sacrifice car is a car you lease from a third-party supplier that has partnered with your employer. The cost of the car is deducted from your salary each month before you are taxed. Unlike company car schemes, where the company pays for the car and maintains it, in salary sacrifice arrangements, you pay for the car, and it is your responsibility to maintain it.

If you use your new car for business purposes too, see our HMRC mileage guide to learn how to keep HMRC-compliant records for your mileage reimbursement or deductions.

Driversnote

Mileage tracking made easy

Trusted by millions of drivers

Automate your mileage log Automate your mileage log

Automatic mileage tracking and HMRC-compliant reporting.

Get started for free Get started for free

Salary sacrifice car taxation

It is important to clarify that a salary sacrifice car is still eligible for a company car tax, known as a benefit in kind. This additional tax is charged monthly based on the value of the car, its CO2 emissions and your tax bracket.

Other benefits to buying a car through the salary sacrifice scheme

Besides reduced income tax and national insurance contributions, you may have access to large fleet discounts through your employer, possible VAT savings and no credit checks to undergo for the purchase. You won’t be providing a deposit and will use a fully maintained and insured new vehicle for the period of the lease.

The salary sacrifice scheme when purchasing a new car is extremely comprehensive and includes all servicing and maintenance costs, the costs of unlimited tyre replacements and repairs. You can take advantage of a fixed-cost and fully comprehensive motor insurance for the contract period with two extra named drivers allowed, road tax for your vehicle for the term of your contract (at the prevailing rate), full vehicle roadside breakdown and service. 

Once you agree to a salary sacrifice car scheme you are locked in for the duration of the contract, unless you leave your job at which point you will have to give the car back.

FAQ

There is no specific limit to how much you can sacrifice. However, your reduced salary has to remain above the national minimum wage.
The main advantage of salary sacrifice car schemes can be higher take-home as you will be paying lower NI contributions and tax, compared to if you were to buy a car yourself.
The car you purchase through the salary sacrifice scheme is still liable to benefit in kind taxation. However, the sum you sacrifice from your salary will not be liable for income tax and NI contributions.

Tired of logging mileage by hand?

Effortless. HMRC-compliant. Liberating.

Auto-track trips
Classify trips
HMRC compliant reports
Automate your mileage logbook
Effortless and compliant mileage tracking
Get started for free Get started for free

Related posts

HMRC Mileage Guide
HMRC Mileage Guide

22 March 2024 - 5 min read

Welcome to our guide on mileage claims and reimbursement in the UK. This guide will walk you through the rules that apply to your situation.

How to amend your HMRC tax return
How to amend your HMRC tax return

27 September 2024 - 5 min read

Find out how far back you can amend a tax return in the UK, including the overpayment relief claim and amending beyond the time limit.

Electric car mileage rates 2024
Electric car mileage rates 2024

16 September 2024 - 2 min read

See the current HMRC rates for claiming mileage on electric vehicles, whether you drive a private or company car for business.