Your guide to salary sacrifice - and why early termination shouldn't be a barrier

April 17, 2023

Our latest salary sacrifice article examines everything from employer and employee benefits to early termination insurance options.

Your guide to salary sacrifice - and why early termination shouldn't be a barrier

 With the UK government planning to end the sale of petrol and diesel vehicles in 2030, electric vehicles (EVs) are the future. EV take-up continues to gain momentum and new electric car registrations are growing year on year [1].

Salary sacrifice continues to rise in popularity as a great way to reward staff from across the business with access to a brand-new electric vehicle while also contributing to the funding and increase in the number of electric cars in the fleet [2]. The arrangement is highly tax-efficient and benefits employees and employers while supporting the green agenda.

What is salary sacrifice?

Salary sacrifice works by the employee effectively exchanging part of their gross salary for an electric vehicle. Because the deduction is taken from the employee's gross salary, it reduces the employee's income tax and national insurance (NI) contributions and lowers the employer's NI contributions.


Salary sacrifice is ideal for electric vehicles due to the very low Benefit in Kind tax (BIK), which remains at just two percent until April 2025.


As well as the financial advantages, salary sacrifice brings many additional benefits:

  • Attractive employee benefit: Valuable employee recruitment and retention tool
  • Greener fleet: Increases carbon neutral vehicles on fleet and supports the environmental, social and governance (ESG) agenda
  • Duty of care: Encourages employees into brand new, fully maintained cars instead of using their vehicles for business (known as grey fleet)
  • Lower fuel costs: Electric charging is significantly cheaper than diesel or petrol [3]
  • No set-up costs: Salary sacrifice is free of charge to put in place

And there's a series of benefits for company employee too, including:

  • Cheaper than a personal lease: There is no requirement for a deposit  
  • No impact on credit score: The contract is with the employer so there is no need for a credit check
  • Fully maintained vehicle package: Servicing, maintenance, insurance, road tax, roadside breakdown and recovery are all included
  • Lower fuel costs: Electric charging decreases fuel costs, especially when charged at home [4]
  • Reduced tax & NI: Taxable salary is lower due to the vehicle cost coming directly from the gross salary

Salary sacrifice is a brilliant way to support the ESG agenda whilst also providing a great employee benefit. Our salary sacrifice plans are proving hugely popular and we’re delighted to be helping customers to go green.

Graham Lesslie, Managing Director, Gofor

Don't let early termination be a barrier

Before embarking on a salary sacrifice scheme, it is essential to understand the options available around early termination. Suppose an employee participating in the plan leaves the business within the vehicle contract term. In that case, this may incur an early termination fee if the lease has to be terminated.


There are several ways to mitigate this risk, which should be agreed upon when the scheme is set up. And there's a number of options to consider.

Use National Insurance savings to offset any risk

The savings made through setting up a salary sacrifice scheme are significant and typically provide an excellent contingency pot to offset any early termination risk.

Example NIC employer savings through Gofor [5]

Table with example National Insurance savings
Decide who takes the early termination risk

Employers can elect to take the early termination risk, have the risk sit with the employee, or add an insurance policy to cover things like early termination. We can run some modelling to help you set up the scheme in the best way for your business and employees depending on what you are trying to achieve.


Think about vehicle reallocation

If an employee left the business, could the vehicle be reallocated internally? Fleet management providers may offer vehicle reallocation support in the case of early termination.

The Gofor approach is to work with our customers to create a salary sacrifice plan that works for the individual business. We create a bespoke package that mitigates any concerns around early termination. Because we offer full, pro-active fleet management, we can also offer help with vehicle reallocation. We want to help as many customers as possible take advantage of salary sacrifice as it’s a true win-win.

Michael Hook, Gofor salary sacrifice product expert

Salary sacrifice in practice - the Gofor way

Customer feedback on the Gofor salary sacrifice scheme has been very positive. For example, Penderyn Distillery, home of the Welsh Whisky Company, recently adopted the scheme as part of its strong sustainability ethos. Stephen Davis, their Chief Executive commented:

I’m excited that we are partnering with Gofor in bringing this additional benefit to our team – we are committed to encouraging green driving but providing electric charging is only the first step. This salary sacrifice plan means all our employees can personally benefit and help us deliver on our net zero ambition.

The employees are also relishing their new electric vehicles. Laura Davies, who is the General Manager for Distilleries at Penderyn, has this to say about her car:

I’m delighted with my new Genesis GV60. The car arrived within eight weeks of my order - which was one of the key factors behind my decision. It’s a brilliant car to drive, and I’m delighted to have been supported to switch to an electric vehicle using such an innovative scheme.

What’s hot in salary sacrifice?

Many electric vehicles are available today, with a battery range above 250 miles, which can also be fast-charged to80% battery capacity in 20 to 30 minutes. This is reflected in the various models proving popular with our customers, often due to the significant tax savings available.

Currently, Gofor’s most popular EVs are:

  • Genesis GV60
  • Tesla Model 3
  • MG ZS
  • BMW iX3
  • Polestar 2

Making the switch to electric with Gofor

Our goal is to make implementing a salary sacrifice plan easy. We manage the whole process, from vehicle quotes through to setting up contracts between your business and your employees.

Get in touch to arrange a consultation where we'll demonstrate the cost savings for your business and explain how to get started with your plan.


[1] SMMT new car registrations

[2] BVRLA Leasing Outlook Report - October 2022

[3] Drivetech

[4] Drivetech

[5] Quote based on a and 3 year, 1+35, 8,000 miles per annum, with all NI savings retained by the employer. The monthly saving/cost is the difference between the Class 1 National Insurance Contributions ("NIC") saved and the monthly equivalent of the Class 1A NIC you pay on the company car in 2023/24,calculated using the BiK % of the car and the P11D value. Calculations are based on the latest applicable legislation. The BiK % is based on the CO2 emissions of the car, as derived from the Worldwide Harmonised Light Vehicle Testing Procedure ("WLTP"). The rate of Class 1A NIC used within the calculations is 13.8%. The rate of employer's Class 1 NIC used to calculate the monthly NIC savings is 13.8%.

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