Buyer’s guide to car salary sacrifice schemes 2015


Despite worries over the future of salary sacrifice arrangements after the Government announced it intended to monitor such arrangements in its July 2015 Budget, car salary sacrifice schemes remain a popular choice with businesses and their employees.

A report from consultancy firm OC&C in 2014 predicted car salary sacrifice could account for 10% of new car sales in the UK by 2025. Given that the Society of Motor Manufacturers and Traders calculated in January 2015 that new car registrations last year hit a 10-year high, with nearly 2.5 million new cars registered, this means car salary sacrifice could see significant growth over the next decade.

As well as the potential tax savings, the fact that the employer retains ownership of the car means it is treated for tax purposes as a company car and therefore deemed a benefit in kind (BIK).

As BIK is primarily calculated based on a car’s carbon dioxide (CO2) emissions, salary sacrifice is most tax-efficient for more environmentally-friendly, lower CO2-emitting cars. This can be an attractive sell for an organisation that is keen to promote its environmental credentials.

The car is regularly maintained and serviced under the contract, so providing a vehicle in this way contributes to fulfilling the employer’s duty of care for staff who have to drive for work, as well as offering a degree of protection under the Corporate Manslaughter and Corporate Homicide Act 2007.

Employer risks

But what are the downsides? The main issue is early termination: what happens if someone leaves the organisation or goes on long-term sick leave?

The most common ways to mitigate against this risk are by adding early termination insurance to the premium or setting up a contingency fund that can be built up through an addition to the premium paid.

Another option is novated leasing, although at present this is only offered in the UK by provider SG Fleet through its NovaLease brand. Under this model, the contract is between the employee and the provider, not the employer. If the employee leaves, they take the car, and the contract, with them.

The employee needs to be aware that they are making a substantial financial commitment, while employers must ensure they do not sacrifice so much salary that they fall beneath the national minimum wage.

To this end, employers may also need to review any salary sacrifice arrangements for employees aged 25 or over when the national living wage comes into force from April 2016.

Further considerations

Other points to consider include: the range and different makes of vehicle available in the scheme, as well as their CO2 emissions; how the scheme can be marketed to ensure good take-up, which may need to be an ongoing process; and how it will be linked to any existing salary sacrifice or flexible benefits portals.

Finally, employers need to consider the possibility that running the scheme may result in extra administration. For example, scheme details and administration may need to be updated whenever tax changes occur, especially in terms of changes to value-added tax (VAT), National Insurance contributions (NICs) or BIK taxation. However, more often than not, providers can help with these administrative details.

The facts

What are car salary sacrifice schemes?

A car salary sacrifice scheme is where an employee gives up a portion of their gross salary in exchange for a car for a contracted period of time. This ‘sacrificed’ salary is not subject to income tax or national insurance (NI), resulting in less tax and NI being paid overall by the employee. The employer also pays lower NI contributions as a result.

Where can employers get more information?

The Association of Car Fleet Operators (ACFO) at or read more at

Who are the main providers?

ALD Automotive, Alphabet, Fleet Evolution, Fleet Hire (including Car Salary Exchange), Hitachi Capital Vehicle Solutions, Inchcape Fleet Solutions, Lex Autolease, LeasePlan, Ogilvie Fleet, Pendragon Vehicle Management, SG Fleet (including NovaLease), TCH Leasing, Tusker, Venson Automotive Solutions, Zenith (including Leasedrive).


18% of respondents currently offer tax-efficient cars via a salary sacrifice arrangement (Source: Employee Benefits/Alphabet Fleet research, July 2015).

Sign up to our newsletters

Receive news and guidance on a range of HR issues direct to your inbox

This field is for validation purposes and should be left unchanged.

Of the 82% that do not, almost a third (30%) plan to but have yet to decide when they will introduce a scheme (Source: Employee Benefits/Alphabet Fleet research, July 2015).

Reliability is the priority for 53% of respondents when choosing an employee company car, followed by whole life costs (48%) and CO2 output (32%) (Source: GE Capital, June 2015).