Company car, cash allowance or salary sacrifice – which is best?
Businesses have offered company cars to job-need drivers (and as a perk to retain staff) for decades. They are owned or leased by the employer, but also available for drivers to use outside work hours, just like a privately owned car.
What are the advantages of a company car?
You’re unlikely to get any unexpected bills. Employers pay for the car (or lease it), most of the running costs – so there’s no insurance, servicing or replacement to worry about, while company car tax is a predictable monthly outlay.
You’ll usually get a new car every three or four years and, provided it’s in good condition at the end of that contract, you can just hand it over without stumping up any extra cash.
It can also be an incredibly cheap way to drive a new car. Company car tax has incentivised low-CO2 vehicles for almost 25 years, and there are some ultra-low rates for vehicles emitting 50g/km or less, which covers most plug-in hybrid (PHEV) and all electric vehicles (EVs). If your lifestyle suits a plug-in, then your monthly tax bill will be significantly lower than the cost of buying or leasing the same vehicle privately.
What are the disadvantages of a company car?
As your employer is footing the bill, they’re in control. Company car choice lists are often banded by pay grade, with caps on list prices, CO2 emissions and in some cases restricted manufacturers and access to optional extras. That means you might not get the car you really want, or the features you really need.
Salary Sacrifice
Salary sacrifice schemes are a grey area between company cars and leasing privately. They enable you lease a car through your employer, typically including servicing, maintenance and breakdown cover. However, unlike a company car, they’ll deduct the cost of the monthly lease from your pre-tax salary.
What are the advantages of salary sacrifice?
Unlike a cash allowance, salary sacrifice lets you access your employee’s buying power and discounts, which can reduce the monthly outlay. Some suppliers are also offering a choice of used vehicles for drivers with lower budgets.
The savings are even bigger if you can live with an EV or PHEV. If you choose a car rated at 75g/km CO2 or less, you’ll pay Benefit-in-Kind on the vehicle’s ‘taxable value’ (an emissions-weighted share of its list price) instead of the cost of the monthly lease (which is typically a much larger amount). That’s usually less tax than you’d pay on the income you’re using to pay for the car.
Ultra-low BiK rates for vehicles under 51g/km CO2, and an influx of cheaper new EVs, have fuelled a renaissance in salary sacrifice recently. The UK’s combined fleet of salary sacrifice vehicles more than doubled in 2025 (to 226,000 vehicles), while 98% of new deliveries are EV (77%), PHEV (19%) or hybrid (2%), according to British Vehicle Rental and Leasing Association (BVRLA).
What are the disadvantages of salary sacrifice?
Although salary sacrifice extends some of the perks of a company car to employees who wouldn’t normally be eligible, you won’t get as much choice as you would buying or leasing privately.
Monthly payments can’t take your remaining salary below the national minimum wage, there’s no option to buy it outright at the end of the contract, and you’ll have to hand the car back if you leave the company.
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