Car leasing salary sacrifice schemes: how they can save you 40%

  • Savings of up to 40% if going electric
  • Savings on hybrid cars too
  • The pros and cons of leasing a car through a salary sacrifice scheme

2019 Audi E-Tron front

Car tax changes for this year have been greenlighted by the Chancellor. What does it mean for you? You can save up to 40% off monthly car costs when you factor in tax, insurance and servicing costs by picking an electric car on a salary sacrifice scheme.

Leasing a car via a salary sacrifice scheme seems like an easy win. Instead of researching bank loans and PCP or HP agreements with car dealers, your monthly car payment is simply taken off your wage packet.

Plus, your car payment is made before tax is deducted. This means that you pay less income tax and national insurance contributions because your taxable salary is lower.

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Leasing an electric car via a salary sacrifice scheme

Leasing a car through salary sacrifice can save you hundreds of pounds. But it's important to clarify that a salary sacrifice car is still eligible for company car tax, known as Benefit-in-Kind (BIK). This is an additional tax that is charged monthly and based on the value of the car, its CO2 emissions, and your tax bracket.

Because of the BIK rules, electric cars are very tempting on a salary sacrifice scheme because electric cars will have 0% BIK tax for the 2020/21 tax year.

In other words, while petrol and diesel cars attract a tax rate you need to pay for, electric cars dodge this. Plug-in hybrids don't offer 0%, but are much lower than traditional petrol or diesel cars.

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Example of electric car salary sacrifice savings

Car: Jaguar I-Pace SE

What you would've paid 2019/2020 What you will pay 2020/2021


P11D value: £69,940


16% BIK rate: 40% tax payer would pay £373 per month

0% BIK rate: £0 per month

How do you lease a car via a salary sacrifice scheme?

First of all, your employer needs to offer this kind of service.

If your employer does, you essentially lease a car from a supplier that's partnered with your employer. Because it's not supplied directly via your employer, it isn't a company car. So you pay for the car and it's your responsibility.

And while a car you lease via a salary sacrifice scheme isn't a company car, it is still eligible for company car tax.

Pros of leasing a car via a salary sacrifice scheme

  • No initial payment or deposit
  • New car for a monthly fee
  • Most agreements include Vehicle Excise Duty
  • Running costs of a new car generally less than an old one

Cons of leasing a car via a salary sacrifice scheme

  • Expensive if you want a valuable car with high emissions
  • Have to give the car back if you leave your company
  • Can affect cashflow as cost of car is taken out before you get your wage
  • Net salary lower - which can affect your ability to get other forms of finance like a mortgage

Should I lease a car via a salary sacrifice scheme?

2019 Tesla Model 3 rear

Thanks to the latest tax reforms, leasing a car via a salary sacrifice scheme can be a canny way to save up to 40% in overall cost. As long as you choose an electric vehicle.

Although it is worth pointing out that the 0% rate for electric vehicles only applies this year, from April 2021 it climbs to 1% and it continues to rise to 2% the year after.

If you're not in the market for an electric car, there are savings to be made with plug-in hybrids too.

But if you're after a big heavy diesel SUV, or powerful petrol sports car, it's probably not the best option.

Further reading:

>> BIK changes for plug-in hybrid, and electric cars

>> The cars that cost £20 to tax

>> How does car leasing work?

>> Best electric cars to lease

>> Best hybrid cars to lease