# Salary sacrifice car schemes explained > How a salary sacrifice car scheme works, why electric cars dominate them, the National Insurance treatment, and what happens when an employee leaves. Source: https://fleetme.co.uk/guides/salary-sacrifice-car-schemes --- # Salary sacrifice car schemes explained By [the FleetMe team](https://fleetme.co.uk/about) · Updated 14 October 2026 · 10 min read The short answer **A salary sacrifice car scheme swaps part of an employee’s gross salary for a company car. Income tax and National Insurance are saved on the salary given up, and benefit in kind is paid on the car instead.** ## How does a salary sacrifice car scheme actually work? ## Where does the saving actually come from? ## Why do electric cars dominate salary sacrifice? ## What does the arithmetic look like? ## What happens if an employee leaves? ## What else does sacrificing salary affect? ## What did Autumn Budget 2025 change? ## Is a scheme worth setting up for a smaller business? ## This is general information, not tax advice ## Put a price on it Tell us the vehicle, the term and the annual mileage you need and we come back with a written quote, and we aim to do that the same working day. Rentals are quoted ex VAT with the VAT-inclusive figure alongside, and your agreement is with FleetMe. How many vehicles do you need? Takes a minute. No obligation. ## Enquiry received, one step to go. We can put a guide figure together from what you ve told us. To confirm the vehicle, the monthly rental and a delivery date **in writing**, we need your business details and the underwriting information. Next step · about 5 minutes Complete your business application It s pre-filled from your answers. Nothing is committed until we confirm your quote and you sign. No obligation · About 5 minutes Prefer to leave it there? We ll still be in touch about your enquiry. ## FAQs ### How does a salary sacrifice car scheme work? The employer leases the car and the employee agrees a permanent reduction in gross pay to fund it. The employee saves income tax and National Insurance on the salary given up and pays benefit in kind on the car instead. It is a contractual change to pay, not a deduction from net pay. ### Why are salary sacrifice schemes almost always electric cars? Because cars emitting 75g/km of CO2 or less are excluded from the optional remuneration arrangement rules, so they are taxed on the cash equivalent rather than the higher of that and the salary given up (HMRC EIM44060). At a 4% appropriate percentage for 2026/27 the taxable benefit is very small. ### What National Insurance is saved on salary sacrifice? The employee saves employee National Insurance on the salary given up, and the employer saves Class 1 National Insurance at 15% on the same amount. The employer then pays Class 1A at 15% on the benefit in kind value of the car, which on an electric car is typically far smaller. ### What happens to a salary sacrifice car if the employee leaves? The lease continues, because it is between the employer and the lessor. The employer either funds the remaining term, redeploys the car to another employee or pays an early termination charge. Recovering that from an employee needs clear contractual authority and cannot take pay below the minimum wage. ### Can salary sacrifice take pay below the minimum wage? No. HMRC is explicit that a salary sacrifice arrangement must not reduce cash earnings below National Minimum Wage rates, and compliance is measured on post-sacrifice pay. From 1 April 2026 the rate for workers aged 21 and over is £12.71 an hour, so lower-paid employees may not be eligible. ### Did the Autumn Budget 2025 change salary sacrifice for cars? No. Car schemes were left unchanged. The announced measure caps National Insurance relief on salary-sacrificed pension contributions at the first £2,000 per person a year from 2029. Separately, company car percentages for electric cars rise to 9% by 2029/30 under rates already published. ### Does salary sacrifice affect pension and statutory pay? It can. Reduced gross pay may reduce salary-linked pension contributions, statutory maternity, paternity and sick pay, death-in-service multiples and mortgage affordability. Give employees a plain-English summary of these effects before they sign rather than after. ## Next step Business van leasing → How the monthly rental is built, what is included, and who business contract hire is for. Business van leasing eligibility → The honest answer on who gets considered, and what we look at when we assess a business. Or go straight to the range: [browse vans and pickups](https://fleetme.co.uk/vans) · [company cars](https://fleetme.co.uk/cars) ## Related