Octopus Electric Vehicles Logo
image of evs
  • Jan 17, 2024

  • 3 min read


Is it better to join a salary sacrifice car scheme or take car allowance?

Offering a company car is one of the best ways to attract, and keep, talented folk. There are a couple of cool ways companies can hook you up with a company car. And we’re gonna chat through two of the most popular:

What is car allowance and how does it work?

A company car allowance is where a lump sum of money is added to your salary by your employer, this lump sum is to help you buy or lease a car, and help cover the costs of running it.

With a car allowance, you’re responsible for finding and buying or leasing the vehicle yourself, as well as taking care of maintenance and insurance. With a car allowance, there are usually no limitations to what sort of car/vehicle you can get - the money is pretty much yours to do what you want.

Is car allowance a taxable benefit?

In short, yes. Car allowance is a taxable benefit and is added to your salary (usually to your monthly pay), so it gets taxed at the same rate as your salary. This means that you’ll pay Income Tax and National Insurance on it too.

However, you don’t have to pay Benefit-in-Kind tax (which can be quite hefty on petrol/diesel cars), as you would with a Salary Sacrifice Scheme.

What’s a company car lease scheme and how does it work?

A company car lease scheme is where a company leases a vehicle on behalf of employees. These vehicles can be used by employees for both work and personal use. An example - our EV Salary Sacrifice Scheme.

This is where you, as an employee, will give up part of your salary in exchange for an EV. The cost of the EV is taken out before Income Tax and National Insurance, and so you pay less than you would if you were to buy the EV out of your own pocket.

Though you don’t pay Income Tax or National Insurance, you will pay something called Benefit-in-Kind tax, but this is minimal on an EV (2% until March 2025).

So, what’s the difference between Salary Sacrifice and Car allowance?

The difference between a Salary Sacrifice Scheme and Car allowance can be confusing, so we’ve broken it down into an easy-to-understand table to help:

Can I use car allowance and salary sacrifice together?

Yes - definitely! Car allowance can actually enhance a salary sacrifice offer.

Car allowance can work hand in hand with salary sacrifice, as it can help you save even more money on your car. Here's a great example of how someone in the 40% tax bracket, using both perks together, could save a hefty amount of dosh: