When it comes to car financing, it can be difficult to know which option is best suited to your needs. Most people are familiar with personal contract purchase (PCP) and personal contract hire (PCH), but fewer are familiar with salary sacrifice.
Salary sacrifice is becoming one of the most attractive employee benefits on the market, boasting cost savings and convenient all-inclusive packages.
But what exactly is a salary sacrifice car scheme? What are the benefits of salary sacrifice compared to personal leasing? This easy-to-digest guide will break down salary sacrifice, PCH, and PCP, so you can pick the option that best suits you.
What is a salary sacrifice car scheme?
Salary sacrifice is a work benefit that gives an employee access to a car. With Zenith, you also get an all-inclusive package* that covers maintenance, servicing, fully-comp insurance, road tax and more – saving you time, money, and hassle.
Your employer leases the car on the employee’s behalf and the cost is taken from your pre-tax salary (before you pay National Insurance or Income Tax), making it even more cost-effective.
At the end of your agreement, you return the car, so you don’t need to worry about the car’s second-hand value.
Salary sacrifice for employees
How does salary sacrifice work?
Just like leasing, you can choose from a range of makes and models before selecting a term length and mileage that suits you. Unlike leasing, however, there are no deposits or upfront costs – making that new car feeling even easier.
Who’s eligible for salary sacrifice?
The specifics of the scheme can vary between employers, so please refer to your employer’s policy for the full details.
Generally speaking, to be eligible for salary sacrifice, you must:
- Be at least 21
- Have worked at the company for six months or more
- Have a salary that would not fall below national minimum or living wage after the sacrifice
Benefit-in-Kind tax
Salary sacrifice is a benefit provided by your employer, so you’ll pay Benefit-in-Kind tax (BiK), which varies based on the vehicle’s CO2 emissions and fuel type. However, as the cost is taken from your pre-tax salary, even with BiK, it’s still a cost-effective option.
For tax year 2026/27 the company car tax percentage for a fully electric, zero-emitting vehicle is 4% and it remains frozen at that rate until March 2027 – considerably lower than a typical petrol or diesel company car tax rate.
This will increase by 1% each year until the end of the 2029/2030 tax year.
More on EV tax savingsWhat is personal contract hire (PCH)?
Personal contract hire (PCH), also known as personal leasing, is a type of car finance where you have access to a car for a set period of time, during which you make monthly payments to a finance company. This process does not involve your employer, so you’ll pay for it with your post-tax salary.
With personal leasing, you usually pay a deposit (generally equivalent to a few months of the standing rental fee) and at the end of the lease, you return the car. Plus, you’ll need to cover the cost of insurance, maintenance, and all other car related expenses.
Like salary sacrifice, you’ll have an agreed mileage limit, you won’t own the car, and you will return it at the end of your contract.
What is personal contract purchase (PCP)?
PCP gives you access to a car through monthly repayments with the option to buy the car at the end.
You’ll pay an initial deposit, usually 10% of its value, and then pay a fixed monthly payment for the duration of your contract. Some companies allow you to pay a bigger deposit to reduce your monthly payments.
PCP differs from traditional hire purchase agreements, as instead of paying off the entire value of the car, your monthly payments will cover the depreciation of the car and interest on the loan.
At the end of your PCP contract, you have three options:
- Pay a final payment to own the car
- Return the car
- Trade the car in for a newer model and start a new PCP agreement
Differences between salary sacrifice, personal leasing, and personal contract purchase
We’re often asked about the pros and cons of salary sacrifice, PCH, and PCP – so let’s take a closer look at the key differences and see how they compare, side by side.
Differences between salary sacrifice, personal leasing, and personal contract purchase
| Salary sacrifice | Personal leasing | Personal contract purchase | |
|---|---|---|---|
| What is it? | A benefit organised through your employer that gives you access to a car. | An agreement between you and a finance provider that gives you access to a car. | An agreement between you and a finance provider that gives you access to a car. |
| Is there a deposit? | No, there are no upfront costs. | Yes, a deposit is required, which can be anything from a few months’ payments to 10% of the vehicle’s total value. | Yes, a deposit is required – usually around 10% of the car’s value. |
| How does it work? | You'll sacrifice a set amount from your pre-tax salary, (making it cost effective) to access a brand-new or quality-assured used car and in-life services package. The agreement usually lasts between 12-48 months – at the end of that period, or if you leave the job, you’ll return the car. | You’ll pay a monthly fixed amount which will cover the cost of the finance for the car. You will need to arrange for insurance and maintenance separately. | You’ll pay a monthly fixed amount which will cover the cost of the car’s estimated depreciated value at the end of your contract. You will need to arrange for insurance and maintenance separately. |
| Is the cost taken from my pre- or post-tax salary? | Payments are taken from your gross monthly salary, which reduces the amount of NI and Income Tax you’ll pay. | The cost is taken from your post-tax salary, meaning there is no NI or Income Tax saving. | The cost is taken from your post-tax salary, meaning there is no NI or Income Tax saving. |
| Is there a mileage limit? | You’ll choose a mileage limit that suits your needs, both for work and for leisure. | Yes, you’ll choose an annual mileage limit as part of your contract. | Yes, you’ll choose an annual mileage limit as part of your contract. |
| Are things like insurance, road tax, and breakdown cover included? | Many salary sacrifice schemes cover regular car servicing and other costs - Zenith’s comprehensive package includes maintenance, fully comprehensive insurance, road tax, and more. | Usually, this just includes access to the car. As well as the monthly car payments, you’ll need to finance car servicing and maintenance yourself, as well as insurance, breakdown cover, road tax, and other associated costs. | Usually, this just includes access to the car. As well as the monthly car payments, you’ll need to finance car servicing and maintenance yourself, as well as insurance, breakdown cover, road tax, and other associated costs. |
| Do I keep the car at the end of the contract? | No, but you may be able to extend your contract if you want to stay in the same car. | No, but you may be able to extend your contract if you want to stay in the same car. | Yes, you can keep your car or exchange/sell it as part of a contribution towards an upgrade. |
Choosing the right option for your circumstances
Ultimately, the main things to consider are:
If car ownership isn’t a priority for you, a salary sacrifice scheme could be a practical and cost-effective way to drive a new vehicle. with the added peace of mind that the scheme is backed by your employer.
With Zenith, the process is simple and fully online. You can explore a wide selection of makes and models with 360-degree browsing, customise your vehicle to suit your lifestyle, and see live pricing with instant quotes, as well as detailed specifications.
To help you choose with confidence, our specialist teams are on hand to help you find the right car for you.
Drivers
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