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A salary sacrifice arrangement is a formal agreement under which an employee accepts that with effect from a set date, they’ll receive a lower taxable salary in exchange for a benefit. In this case, the benefit is a car. The employee receives less gross salary but they save the tax and National Insurance that would ordinarily be due on this salary. The salary they give up is used to cover the lease costs of their chosen vehicle, sometimes including insurance and maintenance.

Electric Vehicles are the most efficient cars for salary sacrifice schemes, however, you can choose to include Ultra Low Emitting Vehicles (ULEVs) to expand the choice of cars available to your employees.

It’s recommended that your employees notify HMRC that they’re driving a company car, or when they change their company car so that they can update their records and tax code without delay. They can update HMRC online here, by downloading the HMRC app or calling on 0300 200 3300.

Tax for your employees and National Insurance Contributions (NICs) for the business will be taken after the salary sacrifice deduction, making savings for both parties.