Salary Sacrifice or Company Car?

Happy driver in a green Mokka -e

Getting a car through your company or salary is an attractive benefit for employees, and it means employers keep their team safe and happy in a new car.  

But while both salary sacrifice and company cars schemes result in an employee getting a car through their employer, they have several key differences. So, which is better? What’s the difference between salary sacrifice schemes and a company car? 

We’ll break it down for you, but, in short:

Company car
Owned (or leased/subscribed to) by the business – you as the driver do not own the vehicle nor have to pay for it, but they’re a high-asset benefits that is only offered in higher profile job roles (or roles that require a lot of travel for work).
Cash allowance
A sum of money given to you in a job role instead of a company car or salary sacrifice option. Much rarer, but gives you a bit more freedom to do as you wish with your car.
Salary sacrifice
Allows almost any employee of a company to get access to a new car for much cheaper than normal, by utilising it as a pre-tax benefit. The cost of the car comes out your salary before tax is taken, meaning your “tax liability” (how much tax you pay) is lower, saving you money.

Let’s start with…

What is a company car?

A company car is owned, leased, or subscribed via the company itself, and isn’t paid for by the employee.

How do company cars work?

Generally speaking, companies will either offer a “company car allowance” to their staff (which they can use to go and find a car of their choosing) or they’ll simply give a car to the employee that the business purchases themselves.

If owned by the business, a company car is treated as a fixed asset, which can have several tax implications such as depreciation. They’re often offered to senior employees or those who spend a lot of time commuting or travelling between locations.

As a company car driver, you may have some restrictions on what the car can be used for and how many miles you drive per year, and your salary should not fall below the national minimum wage.

A Polestar 2 parked on a street in London.

What’s good about a company car…

  • The employee is not financially responsible for the car. It’s the company’s responsibility to make sure it has a valid MOT and is serviced on-time (though, of course, you should look after it).
  • Companies sometimes offer a fuel card with the car, meaning you could get discounted refuelling.
  • It’s a great incentive for new joiners to join your company, if you’re a business owner.

Why a company car might not work for you…

  • Roles with company cars are hard to find and it means they’re only available for certain members of staff and some companies may not let you choose the car (so you could end up driving something you don’t like).
  • There could be increased liability if you use the car outside of given restrictions (i.e. any personal use you’re not entitled to).
  • If fuel is included in your company car benefit, you could end up having to pay what’s known as ‘Fuel Benefit Tax’ (an extra tax you pay for using fuel that’s paid for by your employer).
Happy driver in a green Mokka -e

What is salary sacrifice?

A salary sacrifice scheme means employees “sacrifice” some of their gross salary in return for something, like a car for example, by their employer.

We’ve already gone into detail on how salary sacrifice works but to summarise, instead of paying for something using your post-tax pay (the money you receive in your bank account from your employer), the item is paid for before tax is deducted.

That’s important because it means your overall pay is therefore lower, meaning you’re taxed less by HMRC. Less tax means more take-home pay for you, meaning you could save on average 30-60% on the cost of that item compared to if you were to pay for it traditionally

How does salary sacrifice work?

Find out by watching our electric car salary sacrifice explainer: 

How much will salary sacrifice save me?

Our salary sacrifice scheme can save you 30-60% on the cost of an electric car.

That’s because the subscription cost is deducted from your pre-tax pay, making your taxable income lower

And, unlike a traditional lease, there’s no deposit to pay on an electric car subscription meaning it’s just as easy to access from the off as a company car.

Plus, our salary sacrifice subscriptions include elmoCharge, meaning you could save the same amount on public charging too (and there’s no extra Fuel Benefit Tax added). Save time, improve air quality, and save money. It’s a win-win-win!

Our salary sacrifice calculator

With all this talk about pre-and-post tax pay, it can be a little confusing to work out how much you could save by getting an EV through salary sacrifice.

Don’t fear though, because we’ve done the hard work for you through our salary sacrifice calculator below. Just enter your salary, the car you’d like to subscribe to, and we’ll tell you how much both you and your employer could save.

Happy driver in a green Mokka -e

What is a cash allowance?

There’s a third way for those lucky enough to be offered one!

A cash allowance is what some companies may give you instead of a company car itself. It’s essentially a lump sum added to your salary that you can use to buy, lease or subscribe to a car of your own choosing.

Because company car tax has increased in recent years, particularly for diesel cars or high polluting petrol models, a cash allowance could be a more affordable, long-term solution for you. But you’ll get less support from your employer with the vehicle because it’s not their responsibility

What’s good about a cash allowance

  • You can choose whatever car you like, and pay for it whichever way you prefer, because it’s your money.
  • The car is yours, not the companies, so you can keep it as long as you like or even take it with you if you leave the company.

Why a cash allowance might not work for you 

  • Because the car is entirely your responsibility, you need to arrange the servicing, maintenance and ensure it is roadworthy with an MOT.  
  • If you lease, subscribe or finance the car, you’ll need to stay within the given mileage limits.
Happy driver in a green Mokka -e
Tesla Model 3 parked with man in drivers seat

What is the company car tax on electric cars?

Company cars are a ‘benefit’ in the eyes of HMRC, meaning you need to pay tax on it. It’s known as Benefit-in-Kind tax (or the ‘BiK’ rate). 

How much BiK you pay is determined by the greenhouse gas emissions of that particular car. Because electric company cars are zero-emission, the BiK is really low… at least for the moment.

The current BiK rate for EVs is 2%. It’ll stay at this until at least the end of the 2024/2025 financial year.

Normally, BiK rates can range from anything up to 37%, depending on the vehicle.

Is a car allowance a taxable allowance?

It’s also worth remembering a company car scheme is a taxable benefit meaning (usually) your company car allowance is added to your salary, generally to your monthly pay. That means it’ll get taxed at the same rate as your salary, so you’ll have to pay Income Tax and National Insurance on the car allowance too.

With salary sacrifice, all permanent employees are offered the chance to opt-in to the scheme if they would like an alternative, affordable method to driving an electric car.

Happy driver in a green Mokka -e

What are the benefits of getting an electric car through salary sacrifice?

There are plenty of benefits to setting up a salary sacrifice car scheme, both for the employer and the employee.

For starters, although you do need to consider BiK tax, it’s very low for electric cars at the moment so you still end up saving money.

Benefits for employers include:

  • Attract and retain the best talent your industry has to offer
  • Improve the environmental impact of your workforce
  • Enjoy the total convenience with elmo managing all payroll and HMRC admin
  • Avoid the risk and cost of early termination
  • Pay nothing extra – elmo’s fee for running the scheme is equal to the employer’s NI savings

Benefits for the employees include:

  • An all-inclusive package that includes insurance, vehicle excise duty, MOT, service, breakdown and more
  • Save as much as 60% on the cost of an electric car subscription
  • Choose from the largest range of subscription electric cars on the market (and get a newer car than you may have been able to afford buying outright)
  • Enjoy total flexibility by avoiding multi-year leases
  • Upgrade or change your EV whenever you like

These benefits are all on top of the fantastic benefits experienced by electric car drivers, including attractive savings on fuel costs, congestion charges, and more.

Women getting into a black Peugeot e-2008

Ready to find out more about Salary Sacrifice?

Fill out our short form and our Salary Sacrifice team will contact you with more information about our scheme and how it could benefit you.

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