What’s The Difference Between Salary Sacrifice and Personal Lease Vehicles?
Salary sacrifice and personal leasing provide two convenient ways to access a vehicle without the upfront cost of ownership. Each option comes with its unique benefits and drawbacks, making it essential to understand which suits your circumstances best.
Many companies provide both options and come with additional benefits, learn more here.
Why choose salary sacrifice?
Salary sacrifice is growing increasingly popular in the UK due to the significant cost-saving and quality-of-life benefits.
These schemes allow employees to lease a vehicle through their employer by sacrificing a portion of their salary pre-tax and there are many reasons why you may choose to do so.
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What are the benefits of salary sacrifice cars?
Discounted premium vehicles
Salary sacrifice can offer savings of 30-60% on brand-new premium vehicles, with a wide range of models to suit different tastes, budgets, and requirements.
At EZOO we specialise in premium electric vehicle options, view our full list of EVs available to you here.
Tax benefits
When you pay for a vehicle through salary sacrifice, the payments are deducted from your monthly gross salary, pre-tax.
This reduces your taxable income which can in turn limit the income tax you pay, and the National Insurance contributions you make.
Convenient, full coverage
Alongside the cost-saving tax benefits of salary sacrifice cars, there are major convenience and quality of life benefits.
At EZOO, we manage your car insurance, maintenance, tax, and other expenses on your behalf and bundle them up into one monthly payment.
This saves you the hassle and time of managing these details yourself and ensures you won’t face any unexpected, unwelcome charges further down the line.
Flexible terms
Term lengths vary between providers but typically range from as short as 12 months, up to as long as 48 months.
This gives you the flexibility to commit for a longer period to spread out the cost of your contract for a reduced monthly payment or allows you to pay more each month for a shorter period.
EZOO have 3, 12, 24, 36, and 48-month contract periods to meet all needs.
What are the drawbacks of salary sacrifice?
Employer involvement
A potential drawback of salary sacrifice is that your employer must be registered for the scheme. However, referring your employer is a simple, cost-free process. Employers also benefit from reduced tax contributions, support for Net Zero goals, and enhanced employee satisfaction. Refer your employer for free here >
By joining an electric vehicle salary sacrifice scheme employers can save on tax contributions, promote Net Zero goals, and provide employees with an additional benefit, so it is a no-brainer.
Due to the employer’s involvement, the vehicle you’re leasing is tied to your job and the scheme may terminate if you leave or lose your job, it’s important to discuss these concerns.
Minimum requirements
While salary sacrifice is generally very accessible for the majority of people within all income brackets, there are minimum requirements which must be met.
EZOO for example allows employees earning as low as £20,000 per annum before deductions to participate, and the same goes for Octopus EV.
Love Electric however requires a minimum of £25,000 before deductions per annum and you must maintain over £20,000 after deductions.
Impact on pay
Of course, with part of your pre-tax salary going towards a vehicle, you will be reducing your take-home pay, after tax.
This can also reduce pension contributions, maternity pay, and other salary-related benefits.
Commitment
With salary sacrifice, you will be locked into a fixed-term agreement meaning you are committed for a certain period.
If there are unexpected circumstances requiring you to exit early, there is often a cost involved with this.
Why choose personal leasing?
Personal leasing remains a popular car financing option in the UK, offering flexibility, affordability, and convenience for individuals looking to access newer vehicles without a large upfront payment.
This type of arrangement allows individuals to lease a vehicle for a fixed monthly fee providing access to newer vehicles without the big upfront cost, along with the option to upgrade to a different car at the end of the term.
There are also business-specific routes to take which you can read more about here.
Term lengths
The term lengths of personal lease are typically similar to those of salary sacrifice with most lenders providing options within the 2 – 4 year range.
Longer terms allow for a lower monthly cost, while shorter terms provide less overall commitment and more flexibility.
What are the benefits of personal leasing?
Flexibility
Personal lease has been an option on the market for a long time and therefore there are a lot of providers to choose from, this allows the individual a lot of freedom to find and compare the deals which work best for them.
Employer involvement
As the lease is directly tied to the individual, your vehicle will have no dependency on your employment and will not be impacted by a change or loss of job.
Impact on salary
Monthly payments are made from your post-tax, take-home salary and therefore will not impact pension contributions, maternity pay, and other salary-related benefits.
This does however mean you lose out on the cost-saving tax benefits of salary sacrifice.
What are the drawbacks of personal leasing?
Tax benefits
Unfortunately, personal leasing does not provide the major cost-saving tax benefits that salary sacrifice does as payments are made from your take-home salary.
This means the amount of income tax or National Insurance you pay will not be impacted.
Additional costs
While salary sacrifice with EZOO conveniently bundles all costs into one simple, monthly cost, personal leasing will typically not include insurance, maintenance, road tax, and breakdown cover.
Some leases will also require an initial, upfront deposit.
These hidden costs could make it a more expensive option in the end.
Credit checks
Personal leasing agreements are tied directly to the individual, requiring a good credit score to qualify. This can limit accessibility for those with lower credit ratings.
Furthermore, missed payments could negatively impact your credit record interfering with future attempts at credit.
Restrictions
Personal leasing often comes with additional restrictions on the amount of mileage you’re allowed to do within each year. Exceeding the agreement can result in penalties.
The car must also be returned in good condition with any damage incurring additional charges, much the same as salary sacrifice.
Which is better?
To understand which is better, it’s important to understand the key differences between salary sacrifice and personal lease, and then compare those to your needs as an individual.
It is always recommended to speak to a professional and fully understand the range of options available to you.
| Salary sacrifice | Personal lease | |
| Finance source | Pre-tax salary | Take-home salary |
| Ownership type | Employer-organised | Individual agreement |
| Tax implications | Subject to BIK tax | No BIK tax |
| Terms | 1-4 years | 2-4 years typically |
| Inclusions | Maintenance, Insurance, etc | No additional services |
| Choice | Subscription service available* | More freedom of choice |
With the above in mind, salary sacrifice is often considered best for those in stable jobs with an interest in low-emission, electric vehicles for maximising tax benefits and going through some of the most trusted UK providers.
The all-inclusive, hassle-free packages are another very attractive benefit for those not wanting complex car expenses to sort out.
Personal leasing therefore could be seen as better for individuals who aren’t in a stable job or considering a career change within the next 2-4 years.
Also for those wanting a larger degree of choice and personalisation within their vehicle selection, this is a direction to consider.
Ultimately, the best choice depends on your financial situation, employment stability, and the type of commitment you’re looking for.
Contact our team today for advice on the right solution for you.