Company Car Salary Sacrifice Scheme

Jeffmusicals

Hi,

I am considering joining my company car sacrifice scheme but am a little confused about the value of it to me as higher rate tax payer. I have been hit the last couple of years on tax as my salary with bonus and car allowance has hit around £115k (I’m not complaining as I believe that if you earn it you have to pay tax!).

my car allowance of £600 per month gross which I think nets out to £300 per month and I currently privately lease a car which costs me £430 per month plus £100 warranty and £75 per month in insurance. All together it probably costs about £650 per month net with maintenance etc,

When I look at electric cars on my scheme and out my salary in it says that I

Might be paying around £450 per month all in net which seems too good to be true. Would that tax saving take effect immediately or do you think it may take time to sort out through my coding. Also does that look realistic? It just seems to good to be true and I don’t want to make a big mistake.

I understand the concept but would appreciate any advice that people may have as I’d really like to reduce my tax bill possible (whilst realizing that I am of course very fortunate..).

any other tips and advice gratefully received (car will be electric).

Thanks in advance

El_Torro

It would make a lot of sense for you to get your salary below £100k a year. This can be done through a salary sacrifice car lease scheme, or by contributing more to your pension, or a combination of the two. Any money you earn between £100k a year and £125k a year is effectively taxed at 60%.

There are plenty of valid concerns that come with leasing a car through your employer. Saving £200 a month on a £650 lease is a benefit, though not that big a benefit considering how much you are saving on tax.

So yes, this sounds realistic to me. It should also kick in pretty much straight away, though you probably won't see the full benefit in your pay packet until the new tax year starts.

On-the-coast

as above - get your salary below 100k if possible - which should be fairly easy with combination of car and some pension contributions.
be aware that EV BIK rates are beginning to rise quite rapidly - near the end of your presumed 3 or 4 year deal they will be at least 9% (only 3% at present)

HedgehogRulez

chuck £60k into your pension each year

UKSalaryHelper

@Jeffmusicals The savings are realistic and the reason it feels too good to be true is the 60% tax trap between £100k and £125,140.

Here's the maths on your current car allowance:

• £600/month gross car allowance = £7,200/year
• At ~£115k, that £7,200 sits in the personal allowance taper zone where your effective marginal rate is roughly 62% (40% income tax + ~20% from losing £1 of personal allowance per £2 earned + 2% NI)
• So you only keep about £228/month of that £600 — which lines up roughly with the £300 you mentioned

Now with salary sacrifice:

• If the scheme costs say £450/month gross, your salary drops by that amount
• But because you're sacrificing income taxed at 62%, the actual hit to your take-home is only about £170/month
• You also save employer NI (13.8%) which is partly why the scheme can offer such good rates
• Plus you get insurance, maintenance and warranty bundled in — replacing your current £650/month spend

So you could go from spending ~£650/month net on a car to ~£170/month net. That's where the "too good to be true" feeling comes from — it's not a trick, it's just that the tax system punishes the £100k–£125k band so heavily that salary sacrifice becomes extremely efficient.

On timing: your employer should adjust your gross pay immediately once the sacrifice starts, so you'd see the benefit from your next payslip. Your tax code may take a month to catch up for the BIK, but at 3% BIK on an EV, that's negligible (e.g. on a £40k car, 3% = £1,200 taxable benefit = about £40/month extra tax at 40%).

As El_Torro and On-the-coast said, the bigger win is getting your total income below £100k — that restores your full personal allowance and could save you thousands more per year on top.

SacredStephan

Note that the £100K+ tax trap for Scottish taxpayers is 67.5%, and electric vans currently have zero BIK.