Are Salary Sacrifice Car schemes worth it?

Are salary sacrifice car schemes worth it?  

1 in 4 doesn’t think the idea of salary sacrifice is a positive one. Are they right to think so? Or does the term ‘sacrifice’ raise brows for no good reason? 

Let’s dive deeper and determine whether salary sacrifice car schemes are truly worth it. 

Is Electric Car Salary Sacrifice worth it? 

When it comes to electric vehicles, salary sacrifice is a no-brainer. Here’s why: 

Benefits of EVs in Salary Sacrifice Schemes

EVs have lower running costs than traditional petrol or diesel cars, with reduced maintenance and fueling expenses. Drivers also benefit from just 2% Benefit-in-Kind tax due to low CO2 emissions, meaning a £30,000 Tesla Model Y costs only £600 annually compared to £11,100 for a diesel car at 36%. Most EVs are exempt from congestion charges, saving up to £4,500 a year, while also reducing your carbon footprint.

When Salary Sacrifice Schemes Work Well

Salary sacrifice schemes make EVs more affordable, offering tax and National Insurance savings for employees and employers, fixed monthly payments that often include servicing, maintenance, and road tax, and corporate discounts. They can also boost employee loyalty and morale by providing a brand-new car at lower cost, while EVs attract significantly lower company car tax than petrol or diesel alternatives.

When Salary Sacrifice Schemes May Not Suit You

These schemes may not be ideal if an employee leaves mid-contract, as the employer could be liable for remaining payments, though Early Termination Protection can help. They may also be less suitable for employees who drive very little or whose salary adjustments could impact personal finances.

2. Reduced Pension Contributions 

Since salary sacrifice reduces gross income, it may also decrease pension contributions. Employees should evaluate this trade-off carefully. 

3. Preference for ICE Cars 

If you’re committed to traditional petrol or diesel vehicles, salary sacrifice schemes might not provide the same benefits. Leasing or financing is often a better alternative for ICE cars. 

4. Desire for Ownership 

Cars obtained through salary sacrifice are leased, not owned. At the end of the agreement, employees must return the vehicle and opt for another if they wish to continue in the scheme. 

5. Low Income Threshold 

Employees near the National Minimum Wage may not qualify, as the scheme’s deductions could lower their income below the legal threshold. 

6. Restricted Mileage 

Salary sacrifice agreements typically include annual mileage limits (e.g., 5,000–10,000 miles). Exceeding this limit incurs additional costs, making the scheme less suitable for unpredictable driving patterns. 

Are Salary Sacrifice Car Schemes worth it? 

After weighing the pros and cons, here’s the bottom line: 

For Employees: If you’re looking to go electric, enjoy tax savings, and don’t mind leasing, salary sacrifice schemes are an excellent option. The financial and environmental benefits are substantial. 

For Employers: Offering these schemes can boost employee retention, attract new talent, enhance your company’s green credentials and save money on NIC. 

However, if you prefer vehicle ownership, need an ICE car, or have unpredictable financial or driving needs, salary sacrifice may not be the best fit for now.