Clarity on the future of car salary sacrifice schemes

03 April 2017

Update on the proposed limits to the range of employee benefits-in-kind (BIK)

Since announcements in the 2016 Autumn Statement on the future of salary sacrifice, car salary sacrifice as an employee benefit has received lots of press coverage due to its popularity before the announcements. We therefore thought it would be useful to lay out some of the facts moving forward in 2017.


Car salary sacrifice was first launched back in 2008 and quickly became a popular employee funded benefit. Employees can benefit from a fully-expensed brand new car of their choice with potential Income Tax and National Insurance (NI) savings and crucially, no upfront deposit is required.

Employees can limit the hassle involved in running a car for a fixed monthly cost; schemes include maintenance, tyres and breakdown cover as standard. Comprehensive motor insurance for the employee and up to two named family members also comes as standard for the package, leaving employees only needing to budget for fuel.


The recent HMRC consultation on salary sacrifice proposed limits to the range of employee benefits-in-kind (BIK) that attract Income Tax and NI advantages.

Chancellor Philip Hammond stated in the House of Commons:

“The government will take action now to reduce the difference between the treatment of cash earnings and benefits.

“The majority of employees pay tax on a cash salary. But some are able to sacrifice salary and pay much lower tax on benefits-in-kind. This is unfair, so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else.

“Following consultation with stakeholders, ultra-low emission cars... will be excluded from this change. And certain long-term arrangements will be protected until April 2021.”


With the new restrictions to the salary sacrifice regime having taken effect from April 2017, as mentioned above, ultra-low emission vehicles (ULEV) - those with CO2 emissions of up to and including 75g/km – will be exempt from these changes.

Announcements made in the Autumn Statement mean that tax rates for cars emitting greater than 75g of carbon dioxide per kilometre rose by one percentage point from April 2017.

Whilst certain salary sacrifice schemes have been restricted, any car salary sacrifice arrangements that were in place by 6 April 2017 will be honoured until 2021.


As it stands, the fundamentals of car salary sacrifice schemes are to remain despite the measures announced in the Autumn Statement. However, employees wishing to obtain a non ULEV would not be subject to the same NI advantages as received previously. So, salary sacrifice still remains a cost-effective method for employees to obtain a new car, but is less advantageous than before.

It is also worth noting that there are still savings to be made on other cars. Just like other net benefits, leasing companies and finance brokers will be promoting personal leasing schemes as an alternative to car salary sacrifice schemes. These schemes will allow employees to benefit from savings through corporate discounts and all-inclusive leases.


The new car salary sacrifice rules are clarified and approved by the Government providing a long term future within the employee benefits packages. ULEVs will be the most cost effective car for your employees. Please find examples below which will show the differences.

illustration of car salary sacrifice example

Please find below a table indicating the differences that will affect the NET salary sacrifice deductions for an employee against different vehicles based on their emissions:

table of car salary sacrifice example post April 2017

We are aware that there are a number of conflicting stories from our industry, so if you have any concerns, please do not hesitate to contact us. We will be happy to set the record straight.


Nick McClelland | T: +44 207 528 4217 | E:

1 provided by Car Salary Exchange (