HMRC clarifies Salary Sacrifice Car Scheme Tax

1ST OCT 2017

As reported previously, Salary Sacrifice schemes changed in April 2017; they were renamed to Optional Remuneration Arrangements, and the government largely removed any tax benefits from getting a new vehicle via a salary sacrifice scheme.

However, HMRC have recently clarified that the changes to the tax treatment on salary sacrifice vehicles only applies to the finance rental of the vehicle. This is good news as it means salary sacrifice drivers will save income tax and employers will save Class 1A NI on the insurance and maintenance elements of the agreement.

For vehicles ordered from April 2017:

A driver will be taxed on whatever the greatest is between:

a) the Income Tax due on the amount of salary sacrificed on the finance rental of the vehicle, or

b) the Benefit in Kind charge on the car, which is determined by the P11D and CO2 emission levels of the vehicle.

A driver will not pay income tax on the amount of salary sacrificed to cover the maintenance and insurance elements in the agreement, saving them money.

Man in drivers seat with his head out the window smiling.

Worked Example: Audi A3

In this example a 40% tax payer decides to get an Audi A3 through Pendragon’s employee new car benefit scheme.

Audi A3, 40% Tax Payer




Co2 Emissions (g/km)


Finance Rental


Maintenance Rental




Total Rental (Gross Sacrifice)


Audi A3 in grey.

Under the old Salary Sacrifice Rules, the driver would have made a total saving of just £11 a month. However, the tax saving on maintenance and insurance boosts the total saving to £51 a month, making it very competitive against a regular PCH or PCP.


OpRA Rules - from 5th April


Income Tax Saving


National Insurance Saving


BIK Cost (21%)


Net Sacrifice


Total Saving



OpRA Clarified Rules


Income Tax Saving on car


National Insurance Saving on car


Income tax saving on maintenance and insurance


National Insurance saving on maintenance and insurance


BIK Cost


Variable BIK


Net Sacrifice


Total Saving



The benefit of salary sacrifice was always the convenience of an all-inclusive monthly fee that incorporated full maintenance, tyres, insurance, road tax and AA breakdown cover, as well as the fact that no credit check or deposit was required, but HMRC’s clarification leads to some significant savings for drivers wanting to get a new car through an employee benefit car scheme such as SimplyDriveIt, furthering its competitiveness against a PCH offering.

Get in touch with a member of our team to discuss how you can use SimplyDriveIt to attract, reward and retain team members - call 01332 267 389 or contact us.