Salary Sacrifice Car Schemes: A Complete Employer's Guide

New car buyers sign contract documents for new company car symbolising salary sacrifice car scheme

In this guide, we will delve into the intricacies of salary sacrifice car schemes, how they differ from traditional car buying methods, and explore the myriad benefits they bring to employers.

What is a salary sacrifice car scheme?

A salary sacrifice car scheme is an arrangement where employees agree to forego a portion of their pre-tax salary in exchange for the benefit of a company car.

This agreement typically results in a reduction of the employee's gross salary, leading to potential savings on income tax and national insurance contributions for both the employee and employer.

The employee gets the benefit of using the car, while the employer can offer an attractive perk that could enhance employee satisfaction and retention.

How it differ from traditional car purchasing or leasing?

Contrasting sharply with traditional car purchasing or leasing, a salary sacrifice car scheme operates on the principle of reducing an employee's salary in exchange for a non-cash benefit. Unlike straightforward car ownership or lease agreements, where costs are incurred post-tax, salary sacrifice schemes are more tax-efficient.

They reduce the taxable income of the employee, leading to lower income tax and national insurance liabilities. Additionally, these schemes often include other costs like insurance, maintenance, and road tax, making them a more comprehensive and hassle-free option for employees.

Benefits of a car salary sacrifice scheme to the employer

1. Tax efficiency

Employers benefit from reduced national insurance contributions due to the lower gross salary of participating employees. This can translate into substantial savings, particularly in larger organizations.

2. Enhanced employee benefits package

Offering a salary sacrifice car scheme enhances the overall employee benefits package, making it more attractive to current and prospective employees. This is particularly effective in competitive job markets.

3. Environmental benefits of electric cars

With the inclusion of ultra-low emissions vehicles, such as electric cars, in these schemes, employers contribute to environmental sustainability while also enjoying reduced company car tax liabilities.

4. Administrative ease

Partnering with a leasing company or finance company to manage the scheme can simplify the administration for employers, ensuring compliance with the national minimum wage and other regulatory requirements.

5. Improved employee satisfaction and retention

Providing a valuable benefit like a company car can improve employee satisfaction and loyalty, reducing turnover and associated recruitment costs. Additionally, the ability to save money on running costs and tax benefits is an attractive proposition for employees.

Eligibility and participation

Understanding who can participate in a salary sacrifice car scheme and how the process unfolds is crucial for both employees and employers. This section outlines the eligibility criteria, steps for participation, and the employer's role in facilitating the scheme.

Criteria for eligibility (Employee Perspective)

  • Income tax considerations: Employees must earn above the national minimum wage even after their salary is reduced due to the salary sacrifice. This ensures they don't fall into a lower tax bracket which could negatively impact their financial well-being.

  • Credit check: Employees might undergo a credit check to ensure they can responsibly handle the commitment of a salary sacrifice car.

  • Driving license: A valid driving license is a must, especially when the chosen vehicle is a company car or a new car under the scheme.

Criteria for eligibility (Employer Perspective)

  • Financial viability: The employer must assess the financial impact of implementing such a scheme, considering factors like national insurance contributions and overall employee benefits costs.

  • Scheme suitability: Not all business models or company structures will find a salary sacrifice car scheme beneficial. For example, companies with a large fleet of company cars might find managing individual salary sacrifice agreements cumbersome.

Steps to participate in a salary sacrifice car scheme

  • Initial assessment: Employers and employees should use a salary sacrifice calculator to understand the financial implications, such as changes in pension contributions and reduced salary.

  • Selecting the right vehicle: Options may include electric cars or ultra-low emission vehicles, which can offer tax advantages and lower fuel costs.

  • Formal agreement: Both parties agree to the terms, which detail the salary adjustment and the period of the car scheme.

  • Approval and implementation: After the employer's approval, the employee can proceed to select and order their new car.

Role of employers in facilitating the scheme

  • Providing information and tools: Employers should offer resources, like a salary sacrifice calculator, to help employees make informed decisions about the impact on their pay, tax, and benefits.

  • Ensuring compliance: The employer must ensure the scheme complies with all legal requirements, including those related to national insurance and tax.

  • Managing the fleet: If the scheme involves company cars, the employer is responsible for managing the fleet, including maintenance, insurance, and dealing with the finance or leasing company.

  • Support and guidance: Employers should guide employees through the process, especially when choosing eco-friendly options like electric cars, which might have different implications for fuel costs and tax benefits.

How do I get my company onto a salary sacrifice scheme?

Handing keys of new company car to employee

Getting your company on board with a salary sacrifice scheme for cars involves a series of steps that encompass understanding the scheme, ensuring compliance, and implementing it effectively. Here's a guide to help you through the process:

Step 1. Research and understand the scheme

Start by thoroughly researching what a salary sacrifice car scheme entails. Understand the financial and legal implications, including how it affects income tax, national insurance contributions, employee benefits, and company finances. Consider the impact on employees' take-home pay and benefits like pension contributions.

Step 2. Evaluate company eligibility and benefits

Assess if your company is in a position to offer such a scheme. This involves understanding your workforce's needs and the potential benefits to your company, such as improved employee satisfaction and tax efficiencies.

Ensure that implementing the scheme won't cause any employee to earn below the national minimum wage.

Step 3. Consult with financial and legal experts

Seek advice from financial advisors or accountants to understand the impact on company finances, including tax obligations and national insurance. Legal consultation is crucial to ensure compliance with employment law and tax regulations.

Step 4. Choose a scheme provider

Research and select a reputable provider or leasing company that offers salary-sacrifice car schemes. Look for providers who offer a range of cars, including electric and ultra-low emission vehicles, to cater to diverse employee preferences.

Evaluate the provider's terms, services (like maintenance and insurance), and support they offer throughout the process.

Step 5. Develop a policy and framework

Create a clear policy and framework for the scheme. This should include eligibility criteria, the process of opting in, the range of cars available (including new cars, company cars, electric cars), and how the salary sacrifice will affect gross salary, tax, and national insurance contributions.

The policy should also outline how the scheme affects other employee benefits and what happens in various scenarios (like leaving the job or maternity leave).

Step 6. Communicate with employees

Develop a communication plan to explain the scheme to your employees. This should include informational sessions, detailed FAQs, and access to tools like a salary sacrifice calculator.

Highlight the benefits, such as potential tax savings, reduced fuel costs, and access to new cars or electric vehicles.

Step 7. Implement the scheme

Once the policy is in place and employees are informed, implement the scheme. Ensure that the process is straightforward for employees to opt in. Monitor the scheme regularly for any issues or areas for improvement.

Step 8. Ongoing management and review

Regularly review the scheme to ensure it remains beneficial and compliant with any changes in legislation. Seek feedback from employees to make any necessary adjustments and ensure the scheme continues to meet their needs.

Remember, the key to a successful salary sacrifice car scheme lies in thorough preparation, clear communication with your employees, and ensuring the scheme is mutually beneficial for both the company and its workforce.

Employee scheduling and Time-tracking software!

Employee scheduling and Time-tracking software!

  • Easy Employee scheduling
  • Clear time-tracking
  • Simple absence management
Try for free Request a demo


A salary sacrifice car scheme presents a unique opportunity for employees to enhance their benefits package while potentially reducing their pay income tax liabilities.

Through employee salary sacrifice, individuals gain access to salary sacrifice cars, which not only adds value to their employment package but also aligns with modern, tax-efficient ways of remuneration.

As both employees and employers navigate the complexities of taxes and benefits, such schemes emerge as innovative solutions, fostering a mutually beneficial work environment.

Topic: Salary
Rinaily Bonifacio

Written by:

Rinaily Bonifacio

Rinaily is a renowned expert in the field of human resources with years of industry experience. With a passion for writing high-quality HR content, Rinaily brings a unique perspective to the challenges and opportunities of the modern workplace. As an experienced HR professional and content writer, She has contributed to leading publications in the field of HR.


Please note that the information on our website is intended for general informational purposes and not as binding advice. The information on our website cannot be considered a substitute for legal and binding advice for any specific situation. While we strive to provide up-to-date and accurate information, we do not guarantee the accuracy, completeness and timeliness of the information on our website for any purpose. We are not liable for any damage or loss arising from the use of the information on our website.