The True Cost of Salary Sacrifice Cars: A Deep Dive
Salary sacrifice is simple. You lease a car through your employer and see savings on tax and National Insurance, plus corporate discounts. All in all, this makes your motoring costs 30% to 45% cheaper. At the end of the term, you hand the car back. Then, you can either take another through salary sacrifice, or you can buy it for the market value. But, how does this compare to other methods? Let’s compare using our most popular car of 2023, the MG4.
Salary Sacrifice (based on 10,000 miles a year)
An MG4 on salary sacrifice will cost a basic rate taxpayer around £330/month. That’s the reduction to your payslip each month, and it includes everything but the electricity.
It’s good for around 200 real-world miles between charges. And if you take one through our scheme, we can even throw in a home charge point. If you charge at home on a specialist tariff, you’ll pay 7ppkw; if you can only charge publicly, then you’ll pay around 45ppkw. That means your monthly ‘fuel’ cost would be £15 for those who can charge at home, and £90 for those who cannot. So, we have an average total cost of £400 a month for a brand-new shiny EV!
Forget litres guys, it’s kilowatts we look at with electric cars! And forget scaremongering about long charge times. While this can be correct, you’re not in the car. You’re at work, shopping, or even in bed!
(All costs correct as of 10th Feb 2024)
Leasing a New Electric Car
Salary sacrifice should be a winner here, shouldn’t it? Otherwise, this will be a pretty short blog! According to Leasing.com, the cheapest deal is £351 finance, with a £350 upfront cost. It’s not a lot of money for servicing as EVs are cheap, but it costs a fair whack for tyres as electric cars love eating tyres (all that torque!) Then you have to insure it, and ideally GAP insurance. After all that, we’re talking £500 a month excluding charging, and if you lose your job- you’re in trouble!
Leasing an ICE Car
A comparable car would be a Vauxhall Astra; similar in size but nowhere near as feature-rich. Let’s take the cheapest lease, a 1.2 Turbo GS line. Finance on this is £305/month, with £500 down. If you want it fully maintained, you’re already at the cost of the EV! Then you need to fund insurance, GAP, and the huuuuge fuel bill- typically £110 per month…
Running a Used Car
This is where it gets really interesting. A 5-year-old Vauxhall Astra loses £150 a month in depreciation over 3 years, even based on current conditions where resale values are strong. Maintenance costs are up due to the age, £50 for maintenance and tyres, £50 for insurance, and £10 for recovery. Already you’re at £260 a month. Factor in fuel and, providing you can charge at home, a new EV would be the same cost! As the car gets older the depreciation reduces but the running costs increase. It pretty much stays at this level until it’s 10 years old! If you can’t charge at home it depends on your charging costs.
“BuT i’Ll NevEr OwN iT”
Listen to this. The MG4 we highlighted earlier can be bought for £12,000 at the end of term. We can sell it to the employee for the market value, a figure set by impartial experts. A brand new Astra with a similar spec would cost £27,000. Let’s compare the 2 over 10 years.
After 10 years of renewing your salary sacrifice car, and a new one every 3 years, you would have spent £43,600 (including electricity). If you bought it after 3 years, this figure would fall slightly to £40,000.
The Astra would cost £27,000, £2,000 interest, and £600 insurance/year (£6,000 total). The maintenance on this car would increase every year, totalling £4,000, and the fuel, well, you’re talking the £14,000 range! If you assume the car is worth £2,000 at the end of 10 years we’re looking at £50,000!
Remember, fuel is only going one way!