Our latest driver guides
Salary sacrifice vs personal contract hire vs personal contract purchase
How do I calculate my salary sacrifice car budget?
Drivers Guide to Salary Sacrifice & Company Car Schemes
11 / 06 / 25
If you’ve never accessed a car through your job before, you might not know that there are several different ways your employer can offer you a vehicle — including traditional company car schemes, and salary sacrifice.
Some companies offer a choice of vehicles that can only be used for journeys necessary for the job, while others are more flexible, and allow them to be used for work, leisure and everything in-between. Keep reading our helpful guide, as we unpack everything you need to know about salary sacrifice and company car schemes.
What is a salary sacrifice car scheme?
Salary sacrifice is an employee benefit offered by some businesses, which allows you, the employee, to exchange a portion of your gross salary for a non-cash benefit, like a company car. It’s a simple, affordable way for you to drive a brand-new vehicle, and unlike personal leasing, no deposit is required upfront. Payments are made in monthly instalments, and many salary sacrifice packages also cover extra associated costs as well as the car itself, like insurance and a breakdown service.
There are tax implications of a salary sacrifice scheme — as employees will need to pay Benefit-in-Kind tax, but this can be as low as 3% with electric vehicles. Plus, as salary sacrifice payments are taken from your pre-tax income, you also benefit from reduced National Insurance and Income Tax.
What is a traditional company car scheme?
With a traditional company car scheme, the company might own (or lease) a fleet of cars or other vehicles, and employees are given access to a vehicle for both personal and professional use — usually for a fixed term, like two to four years. This type of car scheme is generally offered to permanent team members, who need to drive long distances on a regular basis to do their job, although this isn’t always the case and regular team members can qualify for company car schemes.
Any leasing arrangements are handled directly by the business, so often there’s no financial agreement for the employee to commit to, and other required costs — like the MOT, insurance and road tax — are also the responsibility of the business. Although with some company car schemes, certainly those involving salary sacrifice or optional car allowances, the employee might make a Personal Use Contribution (PUC) or similar payment toward the use of the vehicle. However, as this is still an employee benefit provided in addition to salary, as the employee, you are also responsible for paying any Benefit-in-Kind (BIK) tax associated with the company car.
Key differences between traditional company car schemes and salary sacrifice
There’s a number of core differences when you’re weighing up a company car or salary sacrifice scheme and in some cases, it’s possible to take advantage of both. Therefore, we’ve put together an overview of the key things to consider:
| Difference | Company car | Salary sacrifice |
|---|---|---|
| Tax differences (BiK) |
|
|
| Who pays for the vehicle |
|
|
| What’s included |
|
|
| Ownership |
|
|
| Vehicle flexibility and choice |
|
|
*Employee may require you to make a payment towards the cost of the car in certain cases; However, this will be outlined from the beginning.
**Employee will not own the vehicle at the end of the agreement.
How to choose the right car scheme
The right car scheme looks different to every business and individual — so it’s worth taking stock of your individual needs and consider the pros and cons of each.
For employees
To work out whether a company car or salary sacrifice scheme would be better for your circumstances, you should think about…
- What you intend to use the car for, as salary sacrifice schemes give you complete flexibility.
- Whether there will be any inconvenient restrictions on mileage; these are common across both types of car scheme.
- Your financial situation. Company car schemes are usually financed by the business, whereas salary sacrifice schemes require the employee to ‘sacrifice’ a fixed amount of their salary each month in exchange for the use of a car.
- Both schemes require the payment of Benefit-in-Kind tax, but salary sacrifice schemes will also reduce National Insurance and Income Tax.
Get in touch
If you’re a driver looking to find out more about salary sacrifice or company car schemes and how they could benefit you, Zenith are here to help. If your employer already has a scheme set up, we can also guide you on how to get started. Don’t hesitate to drop our friendly team a call or an email, and we’ll be in touch as soon as possible.
Log in
Already have a Zenith account?