Salary Sacrifice

Salary sacrifice car leasing is a specific employee benefit program where an employee agrees to reduce their pre-tax salary in exchange for using a leased car provided by their employer. This arrangement offers tax advantages and convenience for the employee and benefits the employer.

How Salary Sacrifice Car Leasing Works:

1. Salary Reduction: The employee agrees to reduce their gross salary by an amount equivalent to the car's lease cost.

2. Lease Agreement: The employer arranges the lease of the car, which is then provided to the employee for their use.

3. Pre-Tax Benefit: The salary reduction is made before tax calculations, lowering the employee's taxable income and, therefore, reducing their income tax and National Insurance contributions (NICs).

4. Benefit-in-Kind (BIK) Tax: The employee is liable for the Benefit-in-Kind tax on the vehicle, calculated based on the car's list price, CO2 emissions, and fuel type.

Example Scenario

For someone earning £30,000 annually, a salary sacrifice car lease costing £400 per month adjusts their monthly gross salary to £2,100. Monthly deductions for tax and National Insurance total £353.47, leading to a net monthly wage of £1,746.53. The Benefit-in-Kind (BIK) tax for the car adds an additional cost, bringing the total monthly car expense to £416.67. This results in a net monthly salary reduction of approximately £200. Over a year, the total cost for the car, including BIK tax, is £5,000.04. By using the salary sacrifice scheme, the employee benefits from reduced tax and National Insurance contributions, slightly offsetting the overall car lease cost. Additionally, the salary sacrifice car lease typically includes comprehensive insurance, road tax, breakdown cover, servicing, and tyre replacement, offering a convenient and cost-effective way to manage vehicle expenses all in one monthly payment.

*The salary sacrifice prices shown above are estimated based on an annual salary of £30,000 in England and Wales. The actual cost may vary and is dependent upon your personal circumstances.