Salary Sacrifice vs Company Car

They cost you different things. A traditional company car is provided by your employer, and you pay only company car tax on it. With salary sacrifice you give up part of your salary for the car, saving income tax and National Insurance on that salary but still paying company car tax. For the same car, a company car that costs you no salary is the cheaper of the two.

Side-by-side comparison

Salary sacrifice car compared with a traditional company car, 2026/27 rules
FeatureSalary sacrificeCompany car
Who pays for the carYou, by giving up part of your salaryYour employer
What it costs youThe salary you give up, less the income tax and National Insurance saved, plus company car taxCompany car tax only, plus anything you choose to contribute
Company car taxSame for bothBoth are taxed on the car's list price × the appropriate percentage for its CO₂ emissions (4% for a fully electric car in 2026/27).
Cars above 75 g/kmTaxed on at least the salary you give upTaxed on the normal car benefit
Employer National InsuranceSaves Class 1 National Insurance on the salary you give up; pays 15% Class 1A on the car benefitPays 15% Class 1A on the car benefit
Your salaryLower, which can reduce pension contributions, statutory pay and borrowing limitsUnchanged
AvailabilityOnly if your employer runs a schemeDepends on your employer and your role

Who each option suits

Salary sacrifice

Best forEmployees who would otherwise lease or buy a car themselves, especially higher-rate taxpayers choosing an electric car.

Company car

Best forEmployees offered a car as part of their package, who then pay only the company car tax.

Key takeaways

  • Both are taxed as company cars; the difference is who pays for the car.
  • Salary sacrifice is best compared with leasing a car yourself, not with a free company car.
  • Above 75 g/km, salary sacrifice loses most of its tax advantage.
  • Employers pay 15% Class 1A National Insurance on company car benefits either way.

What each costs you: a worked example

A fully electric car with a £40,000 list price, for an employee in England earning £60,000, using 2026/27 rates:

  • Company car: the benefit is £40,000 × 4% = £1,600, taxed at 40% = £640 a year.
  • Salary sacrifice at £500 a month: you give up £6,000, save £2,400 income tax and £120 National Insurance, and pay £640 company car tax. Your take-home pay falls by £4,120 a year.

The company car is cheaper for you because your employer pays for it. That is why the useful comparison for salary sacrifice is usually with leasing a car yourself: against a £500-a-month personal lease paid from take-home pay, the same salary sacrifice saves £1,880 a year.

If you are offered a car or a cash allowance

Some employers offer a cash car allowance instead of a company car. A cash allowance is taxed and subject to National Insurance as pay, and you then fund your own car. Compare the allowance after tax and National Insurance with the company car tax, and include the cost of the car you would run with the allowance.

Company car tax explained shows how the benefit is worked out.

FAQs

Is salary sacrifice better than a company car?
For the same car, a company car your employer pays for costs you less, because you pay only the company car tax. Salary sacrifice makes sense when it replaces a car you would otherwise pay for from your take-home pay.
Do I pay company car tax on a salary sacrifice car?
Yes. A salary sacrifice car is taxed as a company car, on its list price × the appropriate percentage. For cars above 75 g/km, you are taxed on the higher of that and the salary you give up.

Figures use 2026/27 rates for an employee in England whose salary is their only income. This comparison is general guidance, not tax or financial advice.

Sources and review

Related comparisons and guides