Choosing between a salary sacrifice scheme and a company car isn’t always straightforward. Both options give you access to a vehicle, but the way they affect your income, tax, and running costs can be very different. If you’re unsure which route is right for you, keep reading to find out which choice makes more sense for your circumstances.
Understanding Salary Sacrifice
Salary sacrifice lets you give up part of your pre-tax salary in exchange for a non-cash benefit, such as a car. With electric vehicles, the scheme becomes even more attractive. You’ll save on Income Tax, National Insurance, and Benefit-in-Kind (BiK) charges, which are currently low for EVs in the UK.
Providers like EZOO make the process simple by including insurance, servicing, road tax, and breakdown cover in one monthly payment. This means you won’t need to budget separately for hidden running costs. In many cases, employees can save up to 60% on the cost of driving a new electric car through salary sacrifice.
What A Company Car Offers
A company car scheme is different. Instead of reducing your salary, your employer provides you with a vehicle as part of your job package. The main downside is taxation, as you’ll pay BiK tax on the car, which is based on its list price and emissions. Moreover, petrol and diesel models attract much higher rates than EVs.
While company cars often suit staff who need a vehicle strictly for business, personal use can push costs higher. Employers usually cover the car’s servicing and insurance, but you’ll have less flexibility in terms of choice and contracts compared to salary sacrifice.
Comparing The Costs
When weighing up salary sacrifice vs company car, the real difference lies in tax efficiency. Salary sacrifice can reduce your take-home pay impact significantly, especially with electric models. In contrast, company cars may work out more expensive once BiK tax is applied, unless the car is ultra-low emission.
It’s also worth considering National Insurance savings. With salary sacrifice, both you and your employer can save on contributions, which isn’t the case with traditional company car schemes.
Flexibility And Lifestyle Considerations
Flexibility is another factor. Salary sacrifice often allows you to select from a range of new or used vehicles, with options that suit commuting, family life, or long-distance driving. Many schemes also include flexible contract terms, which can be useful if your circumstances change.
Company cars, however, are usually limited to what your employer decides. This could mean fewer choices and less freedom if you’d prefer a specific model or features.
Driving Towards Smarter Decisions
The right choice depends on your pay, lifestyle, and car use. If you’re aiming to save money, reduce tax, and drive an electric car, salary sacrifice is likely to be the stronger option.
On the other hand, if you’re in a role where a car is strictly for business purposes and you want minimal involvement in managing it, a company car may still serve you well. Always weigh the long-term financial and practical benefits side by side to make the most informed decision.
