FrequentlyAskedQuestions:SalarySacrificeSchemes
SalarySacrificeFAQs–Introduction
This FAQ guide has been produced by FleetWise to help fleet decision-makers, HR professionals, and procurement teams understand the practical and strategic considerations of implementing and managing a salary sacrifice car scheme. Supported by our comprehensive Buying Guide, this resource answers the most common questions around taxation, scheme eligibility, operational impact, and employee engagement offering clear, up-to-date advice in a rapidly evolving benefits landscape.
Whatisasalarysacrificecarscheme?
A salary sacrifice car scheme allows employees to exchange a portion of their grosssalary for a fully maintained, company-supplied vehicle. This includes insurance,servicing, maintenance, breakdown cover, and often, home charging installation for EVs.
Whyaresalarysacrificeschemesgrowinginpopularity?
They offer a cost-effective way for employees to drive new, low-emission vehicles particularly EVs with tax and National Insurance savings. For employers, they support sustainability goals, enhance recruitment and retention, and often come at zero net cost
Howdosalarysacrificeschemesbenefitemployees?
Employees gain access to brand-new vehicles without credit checks, deposits or long-term finance agreements. Because payments are taken before tax, they benefit from income tax and NIC savings, making electric vehicles especially attractive due to low Benefit-in-Kind (BiK) rates.
CanIleaseusedvehiclesundersalarysacrificeschemes?
Yes, some providers nowofferused or nearly-new EVs under salary sacrifice arrangements. This can be a cost-effective alternative where budgets are constrained.
What’stheBenefit-in-KindtaxrateforEVsundersalarysacrifice?
Battery electric vehicles (BEVs) currently attract a BiK rate of just 2% until April 2025, with modest planned increases thereafter. This makes them significantly more tax-efficient than petrol or diesel vehicles for most drivers.
Whataretheprimaryconsiderationsforemployersimplementingascheme?
Employers must consider scheme design, eligibility criteria, fleet partner selection, and internal communications. Mitigation of early-termination risk (e.g. for leavers or long-term illness) is also essential, with many providers offering insurance to cover such events.
Isitonlysuitableforlargecorporates?
Not at all. The guide notes growing adoption across SMEs as providers now offerscalable platforms. Simpler onboarding, pre-set vehicle choice lists and automated compliance checks have made it more accessible.
Canitbeofferedalongsideatraditionalcompanycarpolicy?
Yes. Many fleets operate dual schemes providing standard company cars to core roles while offering salary sacrifice to all employees as a benefit. This increases engagement and supports grey fleet risk management.
Whatroledoestheleasingproviderplay?
Leasing partners typically deliver vehicle sourcing, maintenance, insurance, scheme administration and driver portals. Integration with payroll systems and employee communications is also key to success.
Whatarethemainrisksandhowaretheymitigated?
Key risks include early termination, vehicle misuse, and fluctuating residual values. Top providers offer return protection cover, driver vetting tools, telematics options and fixed-cost contracts to manage these.
What’stheimpactonESGandsustainabilitytargets?
Salary sacrifice is a powerful ESG enabler. It supports mass EV uptake, reduces fleet emissions, and aligns with Scope 1 and 3 decarbonisation goals. Providers also offer emissions data reporting to feed into ESG disclosures.
Howcanaschemebepromotedinternallytoensurehighuptake?
Success depends on clear internal comms, user-friendly digital platforms, and highlighting cost comparisons vs. personal car ownership. Many firms use webinars, calculators and total-costof-ownership examples to drive engagement.
Issalarysacrificemorecost-effectivethanacarallowance?
For many employees, yes especially for EVs. Car allowances are subject to tax and NIC, while salary sacrifice provides net savings. From an employer’s perspective, it can also reduce NIC liabilities and improve retention without increasing payroll.
Aretherelimitationsorexclusionsemployeesshouldbeawareof?
Yes typically including probationary periods, minimum salary thresholds (to ensureNational Minimum Wage compliance), and age/licence restrictions. Schemes must also be structured to ensure they do not disadvantage lower earners.
Howdoesthetaxworkfordriversundersalarysacrifice?
Drivers effectively pay for the vehicle with their grosssalary, before income tax and National Insurance are applied. This reduces their taxable income and NIC liability. However, they do pay Benefit-in-Kind (BiK) tax on the vehicle.
Whatarethesolutionsforearly-terminationrisk(e.g.resignation,redundancyorparental leave)?
Leading providers offer Return Protection or Early Termination Insurance to cover scenarios such as employee resignation, long-term sickness,maternity/paternity leave or redundancy.
Read the full buying guide here: Buying Guide
AdditionalGuidance:
EVChargeCards&SalarySacrifice(September2025Update)
Compliance tip charge cards in salary sacrifice
• Keep EV + connected benefits under a fixed sacrifice agreed before entitlement.
• Handle energy as a business expense outside the sacrifice and reimburse using HMRC’sAER (from 1 Sept 2025: 8p/mile home, 12p/mile public).
• Be alert to VAT: 5% domestic electricity vs 20% public charging; take VAT advice for charger bundles.
• Contract must meet OpRA requirements (no retro-dates; clear cash-for-benefit exchange; respect NMW).
• Considering a variable sacrifice? Get professional tax advice or HMRC clearance first.
Fixedvsvariablecharge-cardsacrifice what’scompliant?
For EV 'connected benefits' (e.g., a pre-paid public charge card and/or home-charger install) included under salary sacrifice, the sacrifice should be contractual, agreed before the benefit is provided, and not adjusted month-by-month to match card spend. HMRC’s salary sacrifice (OpRA) rules look at whether a genuine contractual exchange of cash pay for a benefit occurs in advance. Variable, usage-linked deductions risk being treated as pay deductions rather than a sacrifice. If you are contemplating a variable model (e.g., a formula that flexes each pay period), obtain independent employment tax advice or seek HMRC clearance.
1. Practical setup: set a fixed, pre-paid allowance (e.g., £X per month for 12 months) within the sacrifice. Any spend above the allowance is employee-funded outside the sacrifice. Keep a minimum term (often 12 months) and re-set the fixed amount at renewal.
2. Separating charging reimbursement
Many employers keep the car under a fixed salary sacrifice and handle energy as a separate business expense (outside the sacrifice), reimbursing home/public charging for business miles using HMRC’s Advisory Electricity Rate (AER) as a baseline. This keeps OpRA clean and reduces compliance risk.
3. VAT on charging and home-charger installs
Public charging is subject to 20% VAT (standard rate). Domestic electricity used for home charging is generally 5% VAT (reduced rate). This differential can influence TCO and reimbursement policies. VAT on a home-charger and the VAT recovery position vary by facts (ownership, business vs private use, invoicing). Get specialist VAT advice when bundling a charger or charge-card within salary sacrifice.
4. Benefit-in-Kind (BiK) reminder BiK forzero-emission cars: 2% to 5 April 2025, then +1% each tax year to 5% by 2027/28 (policy confirmed). Plan schemes assuming these stepped rises.
ShouldIusethesamesalarysacrificeproviderasmyleasingcompany?
Using a single provider can simplify administration and improve consistency across vehicle policy, servicing, and support. However, ensure the provider has proven capability in both areas: - Salary Sacrifice requires tax expertise, employee communication tools, and flexible online ordering.
- Operational fleet leasing demands robust SMR services, compliance support and cost controls.
Additionally, early termination risk is a critical consideration in scheme design. Events such as resignation, redundancy, parental leave or long-term sickness can leave employers exposed to significant costs. Leading providers offer Return Protection or Early Termination Insurance to mitigate these risks. Some schemes allow vehicle transfer to another employee or early settlement at a reduced penalty. It's essential to ensure this protection is clearly built into the agreement from the outset.
If one provider excels in both salary sacrifice and operational fleet leasing, integrated service can yield economies of scale and better reporting. However, for more complex fleets, a multisupplier model may be preferable.
For more information please visit: - Salary Sacrifice hub
Read the full buying guide here: Buying Guide
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