12 June 2025

Making Sense of Salary Sacrifice

Salary sacrifice schemes are on the rise—with a remarkable 51% year-on-year increase, in take up according to the latest figures from the BVRLA (British Vehicle Rental and Leasing Association).* With that kind of growth, it's worth understanding why so many people are choosing this route to get behind the wheel of a new car.

What Is a Salary Sacrifice Scheme?

Salary sacrifice allows you to lease a brand-new car through your employer by exchanging a portion of your gross salary. Instead of paying for the car yourself each month, your employer deducts the cost directly from your pre-tax income.

While it might seem like just a different way to pay, the key benefit is that the deduction happens before tax and National Insurance are calculated—meaning you could save money while driving a new vehicle.

How Does It Save You Money?

Because your salary is effectively lower on paper, you’ll pay less tax and National Insurance. Here’s a simple example:

• Annual salary: £25,000
• Estimated annual tax & NI: £3,500
• Salary sacrifice amount: £300 per month (£3,600 per year)
• Taxable salary after sacrifice: £21,400
• New estimated tax & NI: £2,470

That’s over £1,000 in savings per year! Even after accounting for the Benefit-in-Kind (BiK) tax—currently just 3% for electric vehicles—you’re still likely to come out ahead financially, all while enjoying the benefits of a brand-new, environmentally friendly car.

What does salary sacrifice mean for employers?

Essentially, as the employer, you’ll enter into the financial agreement for the vehicle with the salary sacrifice provider and recover the cost through monthly deductions from your employee’s salary.

ince the employee's gross pay is reduced, their tax and National Insurance are calculated on a lower amount—and the same applies to your employer National Insurance contributions. In fact, you could save up to 15% on employer contributions in some cases.

What Happens if Circumstances Change?

Activa offers added flexibility with their salary sacrifice schemes by including FOC ET after 90 days—which means Free of Charge Early Termination after the first 90 days. If an employee leaves the business or their situation changes, they can return the vehicle without incurring early termination fees. It’s a valuable safety net that provides peace of mind for both employers and employees alike.

How do I join a salary sacrifice scheme?

If you’re an employee, talk to your employer to see if a salary sacrifice scheme is available and how you can take part. For employers, reach out to our team—we’re here to help you set up and launch your scheme with ease.