Whether online or through friends, salary sacrifice is something you've probably heard about. Or if not, then it's about time, because salary sacrifice is good news. For you and your finances.
As a leasing company, we'll preach the benefits of leasing any day of the week, and we'll also preach about the benefits of salary sacrifice. That's because we want to do all we can to help make your motoring life that little bit easier.
Not only does leasing a brand new car cost less than through PCP, but when you do it through salary sacrifice, you're making even more savings.
Let's find out how it works.
How Does a Salary Sacrifice Scheme Work?
Salary sacrifice involves giving up part or all of your income in exchange for a non-cash reward – in this case, a brand spanking new lease car.
What happens is that you'll enter into an agreement with your employer to reduce your gross salary (meaning your salary before tax is applied) in return for a lease on the vehicle of your choice.
Can Salary Sacrifice Save Me Money?
But what's the difference between salary sacrifice and just straight-out leasing a car by yourself?
Well, the great thing is that salary sacrifice car leasing offers both you and your employer savings on income tax and National Insurance contributions (NIC) in what is the ultimate Win/Win situation.
That's because the amount is taken before income tax and National Insurance are applied, so employees and businesses save on the contributions they pay. Not only that, but the set monthly amount will give you fully comprehensive car insurance, road tax, breakdown cover, MOT, maintenance, replacement tyres and accident assistance all included.
Obviously, every employee is different, and every salary can be different, so the amount of savings you make can vary. But it can be up to 60% when compared with the cost of a personal lease taken out by yourself.
Can I Salary Sacrifice Two Cars?
It's a bit more uncommon, but yes, there's nothing stopping you from taking out more than one car under the salary sacrifice scheme as long as your employer approves the request.
You also need to make sure that the salary which is being sacrificed (in this case, yours) doesn't fall below minimum wage as a result of leasing two cars instead of one. Not only would that put an enormous strain on your finances, it would also be illegal.
Benefits of Salary Sacrifice for Employers
- Rewards existing employees and helps attract potential new ones
- No need to provide consumer credit to your employees
- Lower National Insurance Contributions (NICs)
- Improves company image and sustainability credentials by encouraging low-emission motoring through the promotion of electric vehicle salary sacrifice
Benefits of Salary Sacrifice for Employees
- Save money!
- Save on income tax and National Insurance contributions
- Fixed monthly rentals. No up-front payment
- Full maintenance, breakdown cover and road tax included
- Only pay BIK (benefit-in-kind) tax on a car
- No credit check required
Any Downsides?
There's no obvious disadvantages to a salary sacrifice scheme in itself, but it could prove problematic in certain life situations.
Let's suppose you leave your job or get laid off during the lease term agreement, meaning that the remaining costs will be left with your employer who will need to either cover the monthly payments themselves or pay an early termination fee. Which is a bit of a kick in the teeth for them.
Or let's suppose you're applying for credit or making a mortgage application. Now, because your salary is reduced through salary sacrifice, you might end up getting disapproved for credit or receiving less on a mortgage. That's because even though you're making overall savings through salary sacrifice, gross salary is what mortgage lenders care about, and you're giving part of that up.
Salary sacrifice might also be problematic if you're on a lower salary, as it's illegal for your take-home salary to fall below the national minimum wage. So just make sure it doesn't fall below the threshold.
Lean, Mean and Green: Salary Sacrifice Works Best with Electric
Yep, a salary sacrifice is most effective with electric vehicles because the benefit-in-kind (BIK) rate was only 1% in 2021/22 and then will be capped at 2% until 2024/25. For example, if you were looking to get a brand new Tesla Model 3 lease deal through a salary sacrifice that was X amount per month, through this scheme X amount would be deducted from your gross salary every month. You would then receive your salary and pay tax and National Insurance contributions from this new reduced salary. This means that you are paying less tax than you would if you had the car amount paid through your salary as normal.
For a fixed monthly amount taken directly from your gross salary, you as an employee can receive a fully electric or hybrid vehicle (less than 75g/km of CO2) vehicle, therefore saving overall on income tax and NIC.
You as an employee do not own the vehicle, and the responsibility of the car rests with the employer. The employee is therefore subject to benefit-in-kind tax (BIK) similar to a company car, when using a salary sacrifice scheme. This is where the low BIK rate of 2% (up to tax year 24/25) on pure electric vehicle introduces significant financial savings.
A salary sacrifice car scheme is by far the most cost-effective way to drive an electric car.
What Happens at the End of the Agreement?
Same as with a standard lease agreement.
At the end of the salary sacrifice scheme, you simply hand the vehicle back and either opt out of salary sacrifice or enter into a new agreement. As long as the terms of the contract have been upheld and you haven't made an absolute pig's ear of the car, there's no extra charges to worry about.
Obvious note: unlike with PCP or Hire Purchase, you're never going to own the vehicle at the end of the agreement, so you don't have to worry about selling the vehicle on or deciding what to do with it.
Summary
So, is it worth the sacrifice?
The data would say yes. Tax and National Insurance savings don't lie. At the end of the day though, the decision is yours to make. Just remember that you are giving up part of your salary, so if you're thinking of getting a mortgage or similar anytime soon, it's important to get the timing right.
But if you think that a salary sacrifice scheme would be a good move, here at LeaseLoco we have the hottest car leasing deals on the market for you to choose from. Your dream car could be just a few clicks away . . .
Happy leasing, and happy salary sacrificing!
FAQs
Do I need to tell HMRC about salary sacrifice?
Nope, not a whisper. There is no requirement for employers to inform HMRC that you have adopted a salary sacrifice arrangement.
Can I salary sacrifice with bad credit?
Yes, as there's no personal credit checks. So you could have the worst credit rating on the planet and still enter the scheme.
Is EV salary sacrifice worth it?
We think so! It definitely works out better than salary sacrifice for non-electric vehicles.
Can I lease a car through salary sacrifice?
Certainly can. In fact, it's one of the best ways to lease a car.
Does salary sacrifice avoid tax?
Not completely, but because you're exchanging part of your salary for the vehicle, it means you will be paying less of it.