MilesheetSalary sacrifice car schemes: what to check before you sign
The tax treatment makes electric cars unusually attractive through sacrifice. The commitment is longer than most people focus on.
Salary sacrifice car schemes have become common, largely because the tax treatment of low-emission cars makes them work in a way they do not for petrol and diesel.
Why electric changes the arithmetic
Under a sacrifice arrangement you give up salary in exchange for a car. Normally the tax advantage is largely neutralised — you are taxed on the higher of the salary given up or the benefit value.
Ultra-low-emission vehicles are treated differently: the comparison to salary given up does not apply in the same way, so the charge is based on the car's benefit value, which for an electric car is a small percentage of list price.
The result is that you swap taxed salary for a car taxed at a low rate, and the saving can be substantial — often enough that the net cost of a new EV is comparable to running an older car you already own.
The questions, and why each one matters
| Question | Why it matters |
|---|---|
| How long is the term? | Two to four years, and hard to unwind |
| What happens if I leave? | Some schemes insure it, some pass the cost to you |
| What is the mileage limit? | Excess charges erode the saving |
| What does it do to my pension? | Contributions are often salary-linked |
| Will it affect a mortgage application? | Lenders assess on gross salary |
| Does it affect statutory pay? | Maternity and sick pay can be salary-linked |
| What is the benefit-in-kind percentage? | It is scheduled to rise over time |
| Which rate applies to business mileage? | Advisory, not 45p |
What to check before signing
The term. Typically two to four years. Sacrifice arrangements are much harder to unwind than a subscription — leaving the employer, going on extended leave, or a change in circumstances can trigger early termination charges that are real money.
What happens if you leave. This is the single question people fail to ask. Some schemes have insurance covering it, some pass the cost to you.
The effect on everything salary-linked. Reducing gross pay can affect pension contributions, mortgage affordability assessments, statutory maternity pay, and anything else calculated from salary. The car saving is visible; these are not.
The mileage allowance. The lease has a mileage limit and excess charges. If your driving is heavier than you think — and most people underestimate — that erodes the saving.
The bit that connects to your mileage log
That last point is worth dwelling on, because it is the one you can actually answer with data rather than guesswork.
Before you commit to a mileage band for three years, look at what you genuinely drove last year. Most people are surprised in one direction or the other, and being surprised after signing costs pence per mile for the length of the term.
If you have been recording journeys, that number already exists. If you have not, a year of records before the next scheme window is worth more than any amount of estimating.
Business mileage on a sacrifice car
The car is a company car for tax purposes, so approved mileage rates do not apply. Business mileage is reimbursed at Advisory Fuel Rates — or the advisory electricity rate for a fully electric car — not at 45p.
Claiming 45p on a sacrifice car is a common and expensive error.
Sources
- HMRC — Advisory fuel rates
- HMRC — Business travel mileage for employees' own vehicles
- HMRC — Travel, mileage and fuel rates and allowances
- DVLA — Vehicle tax rate tables
General information, not tax or financial advice. Salary sacrifice affects more than your car: take advice on the whole picture before committing.