MilometrySalary sacrifice car schemes: what to check before you sign
The tax treatment makes electric cars unusually attractive through sacrifice. The commitment is longer than many people focus on.
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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.
Cars with CO2 emissions of no more than 75g/km are treated differently: the comparison to salary given up does not apply, so the charge is based on the car's normal benefit value, which for an electric car is a small percentage of list price (4% for 2026-27).
The result is that you swap taxed salary for a car taxed at a low rate, and the saving can be substantial. How substantial depends on your tax rate, the car and the scheme's charges.
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 rates, not 55p |
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 an easy question to forget. 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, 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. Estimates are easy to get wrong in either direction, and finding out 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 can be reimbursed tax free at Advisory Fuel Rates, or for a fully electric car at the advisory electricity rates (two figures, one for home charging and one for public charging), not at 55p.
Being paid 55p a mile for a sacrifice car is a common and costly mistake: the amount above the advisory rate is normally taxable.
Sources
- Salary sacrifice and the effects on PAYE (HMRC)
- Tax on company cars (HMRC)
- Income Tax (Earnings and Pensions) Act 2003, section 139: the appropriate percentage (legislation.gov.uk)
- Advisory fuel rates (HMRC)
- Business travel mileage for employees' own vehicles (HMRC)
- Travel, mileage and fuel rates and allowances (HMRC)
- Vehicle tax rate tables (DVLA)
General information, not tax or financial advice. Salary sacrifice affects more than your car: take advice on the whole picture before committing.
