Salary Sacrifice – What’s not to love

Salary Sacrifice

Xeinadin Group



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Although the term ‘Salary sacrifice’ might not sound like the most positive perk at first, it is indeed a scheme that has quite a few advantages for employees, letting them use their pre-tax earnings in a more efficient way. 

Salary sacrifice allows employees to divert a part of their pre-tax earnings towards a non-cash benefit such as electric vehicles or pension contributions. 

Employers can set up a salary sacrifice arrangement with their employees via a change in the terms of the employee’s employment contract.

With this backdrop, we have looked at the advantages of salary sacrifice for both electric vehicles as well as pension contributions, read our highlights below.

Electric Vehicles

The Government is using various levers within the tax system to provide a financial incentive for employers and employees to improve the take-up of Electric Vehicles (EVs).

Where a new fully electric car is purchased outright or through a contract purchase from 1 April 2021 through to 31 March 2025, it is currently eligible for 100% first-year allowances.

In general terms Salary Sacrifice involves the employee agreeing to a contractual reduction in their salary and in return they are provided with a non cash benefit – an EV via a leasing arrangement.

With the very low Benefit in kind tax on EV Company cars – currently, 2% of the list price at the employee’s marginal rate of tax – being at a much lower rate than the tax on the salary sacrificed, the tax on the overall remuneration package is reduced.

For a £40,000 car, a 40% tax rate payer, pays BIK tax of £40,000 x 2% x 40% = £320p/a

The cost to the employer of providing the EV benefit is offset by no longer paying the salary & NIC’s thereon (or potentially the NIC saving is retained by the company).

The scheme has the potential to enable access to EV’s for a much wider range of employees than those who might historically have been eligible for a company car – without any increase in overall cost to the employer.

With a younger, “greener” workforce who increasingly lease vehicles , a Salary Sacrifice Scheme for EV’s is very much aligned with the general direction of travel.

The scheme can be implemented a vehicle leasing company and can be integrated into your payroll software.


You will all be aware of the impact of Auto Enrolment in recent years and the need to provide a workplace pension.

It is now possible to arrange these workplace pensions in principally a more national insurance beneficial way, via a Salary Sacrifice Scheme. The employee’s salary can be reduced and the salary sacrificed is treated as an additional employers contribution.

With a lower gross salary, the employee pays less tax and NI, and the employer saves on employer NI contributions.

The benefits of the employer NI saving could potentially be allocated between employer and employee.

In all likelihood this potential benefit will only arise where an employer has a number of “well paid” employees and hence where the employers NI saving on the salary sacrificed is material.

Find out more

If you have any questions or would like to discuss any of the above points, please get in touch with our specialist advisors by completing the form below.


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