Is salary sacrifice cheaper than personal contract hire?

Electric vehicles are becoming increasingly popular as more people choose to switch to a cleaner, more sustainable mode of transportation. The high upfront costs of purchasing an EV can put people off before they’ve explored ways to make driving an EV cheaper. There are a few options for financing an electric car for personal use. One option is through a salary sacrifice scheme as an employee benefit, and another is through a personal contract hire (PCH) lease. In this blog, we’ll compare the costs of these two options to help you decide which one is the better choice for you.

The 20% tax bracket is for employees who earn up to £50,270 per year. The 20% tax bracket is for employees who earn up to £50,270 in the 2023/24 tax year. We’ve looked at one of the coolest new electric cars - the ORA Funky Cat. We’ve based this comparison on a salary of £35,000 a year, so let’s see how the numbers stack up.

The ORA Funky Cat is a small car with impressive internal space. The compact, retro design combined with its long range make it a great car for both city driving and longer journeys.

If you work for an employer that offers our EV salary sacrifice scheme, you could get behind the wheel of an ORA Funky Cat for just £344.47 per month. Remember that the cost covers everything you need to get going - there’ll be no surprise payments. Servicing, maintenance, repairs, insurance, tyres, and charging are all rolled into this cost. Not bad!

We went to leasing.com on 18th April 2023, to find the same Funky Cat through Personal Contract Hire at the cheapest price with no admin fees. To get the same car through PCH it costs £534.23 per month once you’ve added in all the extra costs like your servicing, insurance and maintenance. That’s nearly £190 more each month compared to taking the car through salary sacrifice. Plus, you’ll have to sort out your own insurance, repairs, servicing and tyres.

Salary sacrifice offers a massive saving of more than £2,200 each year when you take an ORA Funky Cat through a salary sacrifice scheme instead of a personal lease.

Higher rate earners who make between £50,271 to £125,140 per year fall into the 40%  tax bracket. We’ve compared two of our most popular makes and models of electric cars for this example, so let’s dive into the numbers. For these comparisons, we’ve based the costs on a salary of £80,000 a year.

The Tesla Model Y is our most popular electric car, and it’s easy to see why. It’s a compact SUV with lots of storage, the latest technology, a stunning panoramic roof, and sports car performance.

The cost of a Tesla Model Y through our salary sacrifice scheme for a 40% taxpayer works out at just £458.44 per month. Remember, this cost includes everything you need to hit the road.

Getting the same Model Y through Personal Contract Hire through leasing.com would cost you £676.29 per month once you’ve added in all the extra costs like servicing, insurance and maintenance on top of the lease. That’s more than £215 extra each month compared to getting the car as an employee benefit through salary sacrifice.

Salary sacrifice offers the best savings once again. Across a year, you’ll be making a massive saving of more than £2,600 when you take a Tesla Model Y through a salary sacrifice scheme instead of a personal lease.

Following closely behind the Model Y in popularity, the Polestar 2 is the rapid, responsive, safe, and strong electric version of the Volvo that offers all of the performance and practicality you could want.

You could get behind the wheel of a Polestar 2 through our salary sacrifice scheme for just £475.64 per month. And there’ll be no unexpected surprises or repair costs to factor in; we’ve got you covered.

Getting the same Polestar 2 through Personal Contract Hire through leasing.com would cost you £678.48 per month after adding in all the extra costs of running the car to the lease price. That’s more than £200 extra each month compared to getting the car as an employee benefit through salary sacrifice.

It’s another massive win for salary sacrifice. Across a year, you’ll save more than £2,400 by getting a Polestar 2 through salary sacrifice versus a personal lease.

These examples are based on a 4 year, 5,000 mile agreement. We've based the pricing for both cars on a 40 year old living in Dorset.

We've made the comparisons as like-for-like as possible. We've only selected cars from leasing.com that don't have an admin fee when you order one. That's because there are no hidden fees with us. You can read the details of how we work out our calculations here.

A salary sacrifice scheme allows you to give up a portion of your salary in exchange for a non-cash benefit - in this case, an electric car. The payments for the car are taken from your gross salary, which means your car payments are taken out before you’ve paid tax. This lowers your monthly salary and as a result you pay less Income Tax and National Insurance contributions.

The cost of a salary sacrifice scheme will depend on your individual tax rate as well as the make and model of the EV you choose. We’ve run the numbers on a few different makes and models so you can compare pricing between salary sacrifice and personal contract hire.

A Personal Contract Hire (PCH) lease is a form of long-term rental agreement. You pay a fixed monthly fee for a set period of time and then return the car at the end of the lease term. Just like with salary sacrifice, the monthly cost of the lease will depend on the make and model of the EV, as well as the length of the lease and the agreed mileage allowance.

Because pricing for salary sacrifice is based on which tax bracket you’re in, we’ve run the numbers on a few scenarios to help you decide which would work best for you.

To help you understand the costs of salary sacrifice compared to personal leasing, we’ve crunched some numbers on some of our most popular cars. In our comparison, we’ve included all of the costs you’ll need to cover to hit the road in a new electric car. The pricing includes all servicing, maintenance, repairs, insurance, breakdown cover, tyres and energy to power the car. We’ve searched leasing.com to find the most like-for-like comparisons to our salary sacrifice offers.

There are big savings to be made with salary sacrifice on electric cars, and the numbers speak for themselves. When comparing the costs of a salary sacrifice scheme and a PCH lease, it’s important to consider the following factors:

• Tax Savings - With a salary sacrifice scheme, you’ll make savings on Income Tax and National Insurance contributions, whereas with a PCH lease, you won’t. You’ll be paying for the car out of your salary, which you’ve already paid tax on, so you won’t get these great savings on great electric cars.
• Ownership - With a salary sacrifice scheme, the car is registered to your employer, which means you don’t own the car. With a PCH lease, you don’t own the car either, but you’re responsible for the upkeep and maintenance of the vehicle.

Overall, the cost of a salary sacrifice scheme is generally lower than that of a PCH lease due to the tax savings. The decision between the two options depends on your circumstances and preferences. If you prioritise cost savings, a salary sacrifice scheme may be the better choice. If your employer doesn’t already offer an EV salary sacrifice scheme, we’ll help you convince your company so you can get access to amazing savings through salary sacrifice. It’s totally free for your employer to join, and you can choose from any of our EVs to take home as an employee benefit.