Salary sacrifice is booming: What it means for your business

Salary sacrifice car schemes have seen phenomenal growth over the past 12 months, with the number of vehicles increasing by nearly 120% year on year. This sudden surge in demand means almost 200,000 drivers are now benefiting from ultra-low Benefit-in-Kind tax rates and a fixed-cost motoring package that protects them from inflation for up to four years.

To put this in perspective, the October 2025 Leasing Outlook Report by the British Vehicle Rental and Leasing Association (BVRLA) predicts that salary sacrifice will soon overtake Personal Contract Hire (PCH) as the most popular way for individual drivers to lease a brand-new car. 

With 48% of UK employees saying they want to see salary sacrifice offered as part of their benefits package and 53% of employees claiming that they would switch jobs for better benefits, it’s no surprise that eight in ten companies either already do or are planning to offer a salary sacrifice car scheme to help them reward and retain their most valuable asset: their employees.

What is a salary sacrifice car scheme?

In simple terms, a salary sacrifice car scheme allows employees to use part of their gross salary to lease a brand-new car, including a complete motoring package that includes servicing, repairs, insurance, breakdown cover, and road tax. 

Because all the costs involved are taken before income tax and National Insurance are applied, employees stand to save between 30% and 40%+ depending on their tax bracket. Of course, they will still need to pay Benefit in Kind tax on the amount sacrificed, but with battery electric cars charged at just 3% of their P11D value in 2025/26, rising to 9% by 2029/30, it’s still a lot less tax to pay for most drivers.

What are the benefits for an employer?

With over half of employees ready to switch jobs in search of better benefits, the cost of recruiting and onboarding a replacement can be substantial. Independent research shows that the average cost to fill a vacancy in the UK is around £6,000, and when hidden costs such as training and lost productivity are factored in, that figure can rise to many tens of thousands of pounds. With this in mind, it’s clear that offering a high-impact benefit such as a salary sacrifice car scheme isn’t just desirable; it’s an essential business tool for attracting and retaining the best talent.

In reality, the benefits extend far beyond the financial. By linking Benefit-in-Kind tax rates to CO₂ emissions, government policy actively rewards electric vehicle adoption, meaning a salary sacrifice car scheme not only benefits employees but also helps your business make tangible progress toward critical ESG and decarbonisation goals.

What are the benefits for an employee?

As any employee knows, everything they buy or subscribe to is paid for out of their net salary, after income tax and National Insurance have been deducted. This means that for every £1 spent, a basic rate taxpayer would need to earn around £1.33, rising to about £1.66 for those on the higher rate.

But that’s not all. Because a salary sacrifice car scheme includes all servicing, maintenance, repairs, insurance, and road tax, this fixes all their motoring costs (excluding fuel) for the entire duration of the contract.

Based on a CPI inflation rate of 3.8%, locking in those costs at today’s rate could deliver additional savings of up to 16% over the next four years. In real terms, this could be worth an additional £600 or more.

What is the employer experience like?

A class-leading salary sacrifice scheme should be simple to implement and low-touch to manage. As with the employee experience, the exact process will depend on your chosen partner but here at Novuna, it works like this:

As you can see, with the right partner on board, you can introduce a scheme that runs smoothly from day one, is fully compliant, easy to administer, and aligned with your organisation’s financial and sustainability objectives.

What is the employee experience like?

In many ways, the employee experience is very similar to that of a company car driver. What this looks and feels like will obviously depend on your choice of partner, but here’s how we think it works best.

Once the scheme is live, employees log in to a custom online portal that helps them:

Once their new car is ready, they can then:

• Take delivery at home, work, or another convenient location
• Make a single monthly amount, automatically deducted from gross pay
• Book servicing, repairs, replacement tyres and glass, or access UK-wide breakdown support quickly through our mobile app or by phone (most people find the app easier, quicker, and more convenient)
• Enjoy worry-free motoring with everything but the electricity included

At the end of the agreement, the driver simply hands the car back and chooses a new one or walks away if they prefer. It really is that straightforward.

Is it right for my employees?

Salary sacrifice works well for most permanent employees earning above the minimum wage threshold, once the sacrifice is applied. Until recently, the higher cost of electric cars meant that salary sacrifice was particularly attractive to higher wage earners, but the ever-expanding number of lower-price EVs is helping a growing number of standard rate taxpayers make the switch to electric motoring. With no deposit, no in-contract price hikes, and lower running costs, it’s a benefit that adds genuine financial, environmental, and lifestyle value for many employees.

Is it right for my business?

For organisations with sustainability commitments to meet and great people to reward and retain, a salary sacrifice car scheme delivers on all fronts.

Designed and managed in the right way, it can be cost-neutral for your business to launch and maintain, simple to run, and deliver measurable progress toward ESG goals. What’s more, you can be confident of full legal compliance and a seamless experience for HR teams and employees alike.

Why choice of partner matters

Your choice of salary sacrifice partner will have a significant impact on the success of your scheme. It takes real expertise to design a programme that meets your employment, financial, and sustainability objectives and just as much experience and commitment to keep it performing over time. The right partner will take a proactive, long-term approach to driving engagement through tailored communications, events and digital tools that help employees choose the right car, understand the financial and tax implications, and enjoy up to four years of hassle-free motoring.

Even if you already have a scheme in place, it’s worth reviewing whether it’s still achieving the uptake and engagement you expect, and whether your current provider continues to innovate and evolve in line with your business priorities and goals.

Six questions to ask your salary sacrifice provider:

With over 14 years’ experience designing, delivering, and proactively managing salary sacrifice schemes for businesses with over 1,500 employees, we can help you deliver a scheme that works for your business and your employees.

To find out more, book a discovery call with a member of our salary sacrifice team.