Salary sacrifice car schemes are increasing popular as a cost-effective method of funding employee car purchases.

As in other salary sacrifice schemes, the employee benefits from savings in PAYE (including NI) and VAT. Although there will be a Benefit in Kind (BIK) tax on the car, this can be significantly reduced for eco-friendly vehicles.

Schemes can be so cost effective that some companies are replacing entire existing fleet arrangements with new salary sacrifice schemes.

A salary sacrifice scheme involves the employee giving up a portion of his taxable salary in return for the employer agreeing to provide a non-cash benefit such as a car. The ‘sacrifice' requires a variation in the contract of employment but is, otherwise, very straightforward.

The employee savings essentially derive from National Insurance, PAYE and VAT as well as better buying power. The scheme should be cost-neutral to the company.