Salary sacrifice

Salary sacrifice is a type of company car scheme, but as a driver it will feel more like a personal lease.

You select a car, your employer leases it on your behalf then deducts the monthly rental cost from your gross salary with a corresponding reduction in income tax and National Insurance contributions.

Naturally there’s a tax cost for the car. For anything emitting up to 75g/km of CO2 (mostly plug-in hybrid and electric vehicles), you will pay low-rate BIK tax, just like with a company car. But the total cost, including the monthly rentals, is usually lower than leasing that same car privately.

Above that CO2 threshold, you will either be taxed on the cost of the monthly rentals or the BIK bill, whichever is higher. Predictably, then, most salary sacrifice cars are plug-ins. 

You will get a wider choice of vehicles than a company car scheme, with fleet discounts that you wouldn’t get as an individual. There’s no advance rental at the start of the contract, unlike a private lease, and salary sacrifice can be offered to drivers who wouldn’t otherwise be eligible for a company car. 

Salary sacrifice only makes financial sense if you’re opting for an ultra-low emission car, and there are some red lines. If the monthly rental cost takes your remaining salary under the National Minimum Wage, you will either need to pick a cheaper car or lease it privately instead. 

Also, you can’t take the car with you if you change jobs – and some employers will charge you an early termination fee if you leave before the end of the lease contract. That’s worth considering if you have itchy feet.

Personal lease

As the name suggests, a personal lease isn’t directly funded by your employer. The contract is in your name, so you’re responsible for the monthly payments, whether those are covered by your basic salary or an additional ‘cash allowance’ to get a new car. 

Choice is the biggest plus point: a personal lease gives you the freedom to select whatever car fits your budget, regardless of its CO2 emissions and your pay grade. This can be very useful if you have specific needs, such as having seven seats or the ability to tow. And you can take the car with you if you change jobs.