Short-term vehicle specialists since 2007 · FCA registered

Car SubscriptionsShort-Term Car LeasingFlexible Car LeasingLong-Term Car Hire6 Month Car Lease Deals12 Month Car Lease Deals6 Month Car Leasing ExplainedElectric Car SubscriptionsSubscription vs Leasing
Van SubscriptionsShort-Term Van Leasing6 Month Van Lease Deals12 Month Van Lease DealsLong-Term Van HireAll Van Solutions
Business Leasing & RentalSalary SacrificeNew Business Start-upsOverseas DirectorsOverseas-Owned CompaniesNon-Status Leasing
All Specialist ServicesExpat Car LeasingNon-Status LeasingVehicle Insurance
Browse Live FleetIn Stock, Quick DeliveryFull PricelistVehicle Finder ToolBrowse by ManufacturerCompare Every Option
How It WorksWhat's IncludedFAQsLeasing GlossaryAreas We CoverAbout Us
Browse live vehicles Use the Vehicle Finder Call 0330 330 9425

Employee benefit

Salary sacrifice car schemes

The most tax-efficient way for an employee to have an electric car, and one of the few benefits that costs the employer very little to provide.

Get a quoteBrowse vehicles
In short

Salary sacrifice lets an employee give up part of their gross salary in return for the use of a car. Because the sacrifice comes from pre-tax pay, the employee saves income tax and National Insurance on that amount, and the employer saves employer's National Insurance. It works overwhelmingly with electric vehicles, because the benefit-in-kind tax charge on an EV is low enough that the saving survives — on a petrol or diesel car it usually does not.

The mechanics

How it works

Employer sets up the scheme

Terms, eligibility, and what happens if someone leaves. No capital outlay required from the business.

Employee chooses a car

From the available electric range, within whatever policy caps the employer sets.

Salary is reduced

Gross pay drops by the agreed amount. Income tax and National Insurance are calculated on the reduced figure.

Employee pays BIK

A benefit-in-kind charge applies, but at the low rate that applies to electric vehicles. The net position is normally a substantial saving.

Both sides

Who gains what

The employee gets

  • A brand new electric car for materially less than a personal lease would cost
  • Income tax and National Insurance savings on the sacrificed amount
  • Servicing, maintenance, road tax, warranty and breakdown included
  • Insurance often bundled into the scheme, unlike our standard agreements
  • No credit application, no deposit, no residual value risk

The employer gets

  • Employer National Insurance savings on the sacrificed salary
  • A genuinely valued benefit at very low net cost
  • A visible contribution to fleet and scope 3 emissions targets
  • A recruitment and retention tool that costs less than a pay rise
  • No capital outlay and no vehicles on the balance sheet to manage

Do this properly

The things to get right before you launch

  • Early leavers. Decide up front who carries the cost if someone resigns mid-agreement, and put it in writing.
  • The National Minimum Wage floor. A sacrifice cannot take an employee's pay below NMW, which limits participation for lower-paid staff.
  • Pension and other benefits. Reducing gross salary can affect pension contributions, life cover and statutory pay unless the scheme uses notional salary. Check the wording.
  • Charging. An EV without a sensible way to charge it is a bad benefit. Consider whether workplace charging or a home charge point contribution should be part of the offer.
  • Eligibility. Length of service, probation status and grade caps all need deciding before the first enquiry lands on HR's desk.
This is not tax advice. Salary sacrifice interacts with payroll, pensions and employment contracts. Involve your accountant and, ideally, an employment adviser before launching a scheme.

Next step

Set up a scheme

Our salary sacrifice offering runs through Cocoon Vehicles, with full scheme documentation, an employee-facing portal and quotations for your specific salary bands.

Visit the salary sacrifice portal Talk to us first

Answers

Frequently asked questions

An employee agrees to give up part of their gross salary in exchange for the use of a car provided by their employer. Because the sacrifice comes out of pre-tax pay, the employee saves income tax and National Insurance on the amount sacrificed, and the employer saves employer's National Insurance.

The employee pays benefit-in-kind tax on the car they receive. On a petrol or diesel car that charge is high enough to cancel out most of the saving. On an electric car the benefit-in-kind percentage is very low, so the saving survives — which is why virtually every salary sacrifice scheme in the UK is electric-only.

Typically nothing in capital terms, and employers usually save on National Insurance contributions. The main cost is administration and the early-leaver risk if someone resigns mid-agreement, which is normally managed through the scheme's terms and, in some cases, early termination protection.

This is the question every finance director asks first. Schemes handle it in different ways: some include early termination protection, some pass the cost to the employee, some to the employer. It should be agreed and documented before the scheme launches, not after someone resigns.

Yes. There is no minimum headcount in principle, though schemes generally become easier to administer with a handful of participants rather than one. Talk to us about what is practical at your size.

For an electric car, usually yes, and often by a wide margin — because a car allowance is taxed as salary while a sacrifice arrangement is not. For a petrol or diesel car the allowance often wins. Model both before deciding.

Keep reading

Next step

Ask about salary sacrifice

Tell us your headcount and rough salary bands and we will model what a scheme would look like for your business.

Get a quote 0330 330 9425