Salary Sacrifice Cars: Why the Net Cost Is Lower Than the Sacrifice
The headline sacrifice is not what you actually pay. Tax savings pull it down and benefit-in-kind tax pushes it back up — this guide shows both sides.
What is the Salary Sacrifice Car Calculator?
Salary sacrifice for a car works like this: you give up part of your gross salary in exchange for a leased car. Because the sacrificed salary is not taxed, you save income tax and National Insurance on it, but you pay benefit-in-kind tax on the car, which depends on its list price (P11D value) and its benefit-in-kind percentage. Electric cars usually carry a much lower benefit-in-kind percentage than petrol or diesel cars, which is why they often look cheaper through sacrifice. Enter the monthly gross sacrifice, your income tax rate (20% or 40% are the common UK rates), your National Insurance rate, the car list price and its benefit-in-kind percentage. The result is an estimate: your employer's scheme terms, your tax code and the exact benefit-in-kind rules for the year all affect the final cost, and a lower gross salary can also affect pension and mortgage assessments.
How to use it
- Enter the monthly gross salary sacrifice amount for the car.
- Enter your income tax rate and National Insurance rate.
- Enter the car list price (P11D value) and its benefit-in-kind percentage.
- Click Calculate Net Car Cost to see the savings, the benefit-in-kind tax and the net monthly cost.
Worked example
A £400 monthly sacrifice at 20% tax and 8% National Insurance saves £80 tax and £32 National Insurance. With a £35,000 list price at 3% benefit-in-kind, the annual benefit is £1,050, tax at 20% is £210 per year or £17.50 per month, so the net monthly cost is £400 minus £80 minus £32 plus £17.50, which is £305.50.
What is the net monthly cost of a £400 sacrifice on a £35,000 car at 3% benefit-in-kind?
Tax saved is £80 and National Insurance saved is £32, while benefit-in-kind tax is £17.50 a month, so the net monthly cost is £305.50. Electric cars usually beat petrol and diesel here because their benefit-in-kind percentage is much lower, shrinking the tax added back.
Frequently asked questions
How does salary sacrifice for a car work?
You give up part of your gross salary in exchange for a leased car. Because the sacrificed salary is not taxed, you save income tax and National Insurance, but you pay benefit-in-kind tax on the car.
Why are electric cars cheaper through salary sacrifice?
Electric cars have a low benefit-in-kind percentage, so the benefit-in-kind tax is much smaller than for a petrol or diesel car with the same list price.
Does salary sacrifice affect my pension or mortgage?
It can, because your gross salary falls. Some pension schemes use the pre-sacrifice salary, but mortgage lenders may look at the lower figure. Check with your employer and lender.