Company car vs salary sacrifice

Is the company car still king?

Once upon a time, being handed the keys to a company car felt like a major milestone. It was a visible perk, a status symbol and for many employees, a real highlight of their job. 

But fast forward to today and things look a little different. Costs are under more scrutiny than ever, sustainability is firmly on the agenda, and employees are placing more value on flexibility and meaningful benefits. 

The data speaks for itself. A salary sacrifice scheme is no longer niche. In fact, uptake of EV (electric vehicle) salary sacrifice schemes grew by over 50% in 2024 alone, making it one of the fastest growing employee benefits in the UK. 

When it comes to company car vs salary sacrifice, businesses are increasingly turning to providers such as BHN Extras to modernise their benefits offering without adding complexity, or cost. 

So what are the differences between a salary sacrifice scheme and a company car scheme? What are the pros and cons of both and which makes more financial - and economical - sense for you to offer as an employee perk? Let’s find out. 

What’s a salary sacrifice car scheme?

A salary sacrifice scheme allows your employee to exchange part of their gross salary for a benefit - in this instance, an electric car. Because the deduction happens before Income Tax and National Insurance, your employee reduces their taxable income. 

As electric vehicles become more mainstream and government policy continues to support greener transport, salary sacrifice schemes have rapidly evolved from a niche benefit into a core part of modern reward strategies. They offer employees a straightforward way to access new vehicles while also delivering meaningful tax advantages.

Thanks to government incentives, your employees can currently save between 20% and 50% on an EV compared to traditional leasing or ownership. Better still, schemes available through BHN Extras bundle everything into one predictable monthly payment including insurance, maintenance, road tax, and often even a home charger. 

With most EVs now comfortably reaching 300 miles, and the UK rapidly expanding its charging network - now exceeding 86,000 public charging points - range anxiety is also far less of a concern. 

What’s a company car scheme? 

You may already be familiar with the traditional company car scheme, whereby you provide a car directly to your employee and cover costs such as leasing and maintenance. And in some roles it can still work well, especially where long-distance driving or high annual mileage is involved. 

However, the tax landscape has shifted significantly and employees now pay benefit–in-kind tax, or BiK tax, based on vehicle emissions. For petrol and diesel cars, this can be substantial. In fact, whilst electric vehicles are taxed at around 3% BiK (benefit-in-kind), high-emission vehicles can face rates of up to 37%.

Salary sacrifice vs company car

At first glance, both options appear to deliver the same outcome - access to a vehicle as part of an employment package. But when you look closer, the financial, operational and strategic differences become far more significant.

Financial Impact 

Let’s get started with the big one - money. Because this is likely a key driver when it comes to decisions being made in your organisation. 

While both company car and salary sacrifice schemes provide access to a vehicle, the financial outcomes can be dramatically different, especially when tax and incentives are factored in.

Company car pros and cons

Traditional company car schemes are often straightforward for employees because the employer manages the vehicle and related arrangements. They can also work well for roles involving high business mileage, where having a centrally managed fleet makes operational sense.

However, the costs can quickly add up. Employees driving petrol or diesel company cars often face much higher Benefit-in-Kind (BiK) tax rates, whilst employers remain responsible for additional costs such as Employer National Insurance contributions, depreciation, maintenance and ongoing administration.

Salary sacrifice pros and cons

Salary sacrifice car schemes are designed to make electric vehicles more affordable and financially efficient. Because payments are taken before Income Tax and National Insurance, employees can reduce their taxable income whilst potentially saving between 20% and 50% compared to traditional leasing or ownership. Employers can also benefit from Employer National Insurance savings, making salary sacrifice a cost-effective employee benefit to offer.

That said, salary sacrifice won’t suit everyone. Because deductions reduce gross salary, some employees may prefer not to lower their headline pay, particularly if it could affect things like borrowing or pension calculations. Eligibility can also depend on salary thresholds and employment circumstances.

Verdict 

From a purely financial perspective, salary sacrifice delivers greater overall value for both employers and employees in most scenarios. The combination of tax efficiency, lower employer costs and predictable pricing makes it a far more modern and cost-effective approach.

If you’re interested in finding out more about the salary sacrifice schemes provided by BHN Extras, click here.  

Tax efficiency and BiK considerations 

Tax is where the gap between a company car and salary sacrifice car really widens. 

The UK government has deliberately structured incentives to encourage EV adoption, and salary sacrifice schemes sit right at the centre of that strategy. 

• EV BiK tak is just 3%, raising gradually but remaining far below petrol and diesel rates until at least 2030
• Equivalent petrol and diesel cars can reach 25%-37% BiK

Simply put, the difference translates into hundreds, if not thousands, of pounds each year in savings. Add to that the fact that the UK budget 2025 confirmed £1.5 billion in EV funding and long-term support for salary sacrifice schemes. 

When it comes to tax efficiency, salary sacrifice stands out as one of the most advantageous employee benefits available today. The structured incentives, low BiK rates and ongoing government support make it a clear winner for forward-thinking employers.

Environmental impact and net zero goals 

You probably already appreciate that sustainability is no longer a ‘nice to have,’ and is now a core business priority. Transport is one of the largest contributors to corporate emissions, meaning vehicle choices play a direct role in achieving net zero targets.

This is where salary sacrifice schemes play a key role, as research suggests employees are three to four times more likely to switch to an EV when a salary sacrifice is available.

Company car pros and cons

Traditional company car schemes can still offer some environmental benefits, particularly when employers regularly replace vehicles with newer, more fuel-efficient models. Compared to older cars on the road, modern company vehicles often produce lower emissions and improved fuel economy.

But when comparing company car vs salary sacrifice schemes, traditional company car fleets are often slower to transition fully to electric vehicles. Many businesses still rely heavily on petrol or diesel vehicles, which can lead to higher long-term carbon emissions and make it harder to meet wider sustainability and ESG goals.

Salary sacrifice pros and cons

One of the biggest advantages of salary sacrifice car schemes is how quickly they help businesses increase EV adoption. By making electric vehicles more affordable for employees, salary sacrifice supports lower carbon emissions, strengthens ESG commitments and aligns closely with UK government policy around greener transport.

That said, while electric vehicles significantly reduce tailpipe emissions, they don’t completely remove environmental impact. Factors such as tyre and brake wear can still contribute to air pollution, although overall emissions remain considerably lower than traditional petrol and diesel vehicles.

Verdict 

From a sustainability standpoint, salary sacrifice is the clear leader. It actively supports decarbonisation goals and enables organisations to make measurable progress towards ESG commitments, rather than simply maintaining the status quo.

Administration and operational complexity 

Managing traditional company car schemes can place a significant administrative burden on your HR and/or finance teams, from leasing agreements to insurance, maintenance and compliance tracking.

As organisations look to streamline operations and reduce overheads, simplicity has become a key factor when considering employee benefits.

Looking at the salary sacrifice scheme offered by BHN Extras, you’ll see:

• The scheme is fully managed
• Payroll integration is straightforward 
• Reporting is built-in 

More importantly, there’s growing demand for this level of simplicity. Around 47% of UK SMEs now prioritise flexible benefits, including salary sacrifice schemes, to reduce admin and improve staff retention. 

A salary sacrifice scheme handled by a provider such as BHN Extras significantly reduces your admin and operational burden. By outsourcing administration to a provider like BHN Extras, you can offer your workforce a high-value benefit without adding internal workload or cost. 

BHN Extras offers a range of employee benefits - as well as salary sacrifice schemes on cars and bicycles - including savings on home and tech items, cashback at top retailers and discounts on gift cards. 

Employee experience and engagement 

Finally, and possibly most importantly, let’s take into consideration what really matters - how your employees feel about this benefit. 

It’s becoming evident that employees’ expectations regarding benefits are changing, and what they really want are perks that are:

• Flexible
• Financially valuable
• Environmentally responsible 

A salary sacrifice scheme ticks all three. It’s actually also becoming one of the most desirable benefits available, with some industry reports now describing EV salary sacrifice as one of the top employee benefits in the UK. 

There’s also significant proof to support the notion that a happier workforce remains more loyal, is more productive and ultimately, positively impacts your bottom line. 

Electric vehicles and the future of employee benefits 

The rise in electric vehicle popularity is central to the company car vs salary sacrifice conversation, and the momentum is only building. 

With infrastructure investments continuing to expand, government grants of up to £3,750 to help reduce the upfront costs of EVs, and an 80% increase (in the past year) in EV models under £37,000, it makes sense for employers to consider offering salary sacrifice schemes as an alternative to company cars. 

With the help of BHN Extras, you too can tap into this shift and offer your employees access to EVs in a way that’s simple, affordable and aligned with the environmental goals of your organisation. 

When might a company car still make sense? 

It’s important to keep things balanced and consider scenarios when a company car scheme may still work better for you and your employees. Some instances include: 

• High annual mileage roles 
• Specialist vehicle requirements 
• Limited eligibility for salary sacrifice 

However, even in these cases, many organisations are transitioning toward hybrid cars or fully electric fleets to reduce emissions and align with long-term cost efficiencies.

Why salary sacrifice is the smarter choice

When you step back and look at the full picture - cost, tax, sustainability, admin and employee demand - the outcome of the company car vs salary sacrifice debate is clear. 

Not only does a salary sacrifice offer proven tax savings, lower employer costs, reduced admin, strong ESG alignment and high employee appeal, it’s also backed by government policy, funding and long-term incentives. 

In conclusion, salary sacrifice schemes are no longer just an alternative, but are quickly becoming a default. With more and more employees seeking roles accompanied by attractive perks, it makes sense to ensure your organisation isn’t missing out on, or worse still, losing talent, because your benefits scheme isn’t up to scratch. 

BHN Extras offers a wide range of instant benefits to employees, via an easy-to-use online platform. With quick set up and minimal input required from you, offering benefits that make a real difference to your workforce couldn’t be easier. Click here to get started.