Car salary sacrifice scheme for employees

The first step in checking if you’re eligible is to find out if your employer has enrolled in the scheme yet or not. If not, you can ask them if it’s something they’d be interested in. 

If they are signed up, have a read through the terms and conditions documents that we’ll share to find full details on eligibility criteria. 

One important point to note is that a salary sacrifice agreement cannot reduce your cash earnings below the National Minimum Wage level. So if this was the case, you’d unfortunately not be eligible. If you’re on variable pay and are likely to see less salary in certain months, this may also affect you. 

Most companies will also expect any employee to be full-time and of course, have a valid driver’s licence. 

With the Carwow Leasey Salary Sacrifice Scheme, there is the option of an early termination if your circumstances change or you no longer wish to be part of the scheme.

Salary sacrifice agreements like ours can be ended early by choice, or by other reasons such as resigning, retiring, being dismissed or being made redundant.

We also offer Early Termination Protection. This clause enables you to exit the agreement without incurring any significant outstanding expenses. Plus, it safeguards employers from the hassle of pursuing payments from former employees.

If the salary sacrifice arrangement is ended early, the expense would be equal to either three months' worth of outstanding payments or half of the remaining payments, whichever option is cheaper.

As a general rule, you can save up to 40% on the cost of personal leasing with our electric car salary sacrifice scheme.

The higher your tax rate, the more savings that can be made too. For example, people in the 40% tax rate will save more than those in the 20% tax rate.

For example, the standard costs of a Tesla Model 3 lease could be over £500 per month, but by leasing it via a salary sacrifice scheme you’ll pay closer to £300 thanks to the big reduction in income tax and National Insurance contributions.

The biggest saving as part of an electric car salary sacrifice scheme comes in the form of income tax and National Insurance contributions. These savings exist because salary sacrifice is deducted from your gross pay (pre-tax), which effectively lowers your reported salary, leaving HMRC to tax you based on the lowered amount instead.

You will need to pay a small amount of Benefit-in-Kind (BiK) tax as salary sacrifice cars are classed as company cars, but this is currently only at 2% and rising by 1% each year from April 2025 to 2028 for zero emmission vehicles.

As part of the deal, most things are covered including the manufacturer’s warranty and servicing, as well as insurance and breakdown cover. The only things you’ll be responsible for really is keeping up to date with the monthly payments, as well as taking care of the car to ensure it doesn’t suffer any damage via negligence or other means.

You’ll also be responsible for returning the car at the end of your agreement, but you can work with us to do so at a time that suits you.

Most standard damage will be covered as part of the included maintenance package that comes as standard, such as tyres and windscreen damage. Fully comprehensive insurance is also included, as well as breakdown cover for roadside assistance and recovery. 

If you’ve caused damage outside of the cover, this would need to be assessed and you may be liable to pay for the necessary repairs.

A common worry for people thinking about joining our salary sacrifice scheme is what happens if you leave your job while in the middle of an agreement. The general rule is that you would need to return the car and possibly pay an early termination fee of three months rental costs, but this is at the discretion of the employer. 

A key feature of our scheme is that we have Early Termination Protection, which means that you can opt out of the deal without being liable for such extensive remaining costs. It also protects employers, who won’t be left to chase payment with employees who are no longer with them. 

If you’re given a pay rise at work, the figures for your salary sacrifice agreement would be automatically updated if you have entered a different tax band. For example, if you’ve been increased from the 20% tax band to the 40% tax band, you’ll be able to save even more on tax.

In the event that you go on maternity or paternity leave, there are two options. If you opt to retain the car throughout your leave period, you'll have the opportunity to keep it for a full 12 months. You'll only need to cover six months' rental fees though, effectively giving you a discounted payment plan.

Alternatively, you can choose to return the car before commencing your paid parental leave. In this scenario, you'll be subject to the same early termination conditions, which mean paying either three months' rental or half of the remaining rental, whichever option is cheaper.

Once you have chosen the right EV for you, your employer will then lease the vehicle from the leasing company via a business contract hire agreement. The cost of the monthly payments will then be taken from your salary automatically each month.

How the scheme will affect your pension depends on the type of pension that you have. Whether it’s a defined benefit pension, defined contribution pension or state pension, each is affected differently.

The short version is that if it’s a defined benefit pension, salary sacrifice reduces the amount paid out from your pension during retirement due to your total earnings being reduced. However, this impact can still be minimal, so it’s worth doing the sums to work out if it’s right for you.

If you have a defined contribution pension, it’s very unlikely that your pension will be affected since your pension contribution is worked out before you’ve applied the salary sacrifice. Therefore, there’s no reduction to your contribution and the amount you are entitled to once you’ve retired.

If you have a state pension, the only way you’d be affected is if your earnings are taken below the Lower Earnings Limit while you still earn over National Minimum Wage, which means you’d be working very few hours per week.