NHS Salary Sacrifice Car Scheme: How It Works and What You Need to Know in 2026

If you work for the NHS and need a new car, you have probably heard colleagues mention the salary sacrifice car scheme. It sounds appealing: drive a brand new vehicle with insurance, servicing, and breakdown cover all included, paid for through your salary before tax. But how does it actually work, and is it the right choice for your circumstances?

This guide explains how the NHS salary sacrifice car scheme operates, who can access it, what the real costs and savings look like, and the important factors you need to consider before signing up.

What is the NHS salary sacrifice car scheme?
How does salary sacrifice work?
Who is eligible for the scheme?
What costs are included in the monthly payment?
How much can you save on tax and National Insurance?
How does the scheme affect your NHS pension?
What is Benefit-in-Kind tax and how does it apply?
What happens if you leave the NHS or change roles?
Electric vehicles and the salary sacrifice scheme
Is the NHS salary sacrifice car scheme worth it?

What is the NHS salary sacrifice car scheme?

The NHS salary sacrifice car scheme allows permanent NHS staff to lease a new car by agreeing to reduce their gross salary in exchange for the vehicle. The monthly lease cost is deducted from your salary before income tax and National Insurance contributions are calculated, which can result in significant savings compared to leasing or buying a car privately.

The scheme is typically offered through approved providers such as NHS Fleet Solutions, Tusker (via CPC Drive), or Knowles Associates, depending on which NHS Trust you work for. Not all Trusts participate in the scheme, so you will need to check with your HR department to confirm availability.

How does salary sacrifice work?

Salary sacrifice is an arrangement where you agree to give up part of your gross salary in return for a non-cash benefit. In this case, the benefit is a fully maintained lease car. Because the deduction happens before tax, your taxable income is reduced, which means you pay less income tax and National Insurance.

For example, if your gross annual salary is £35,000 and you sacrifice £4,000 per year for a car, your taxable income becomes £31,000. You then pay tax and National Insurance on the lower amount, which reduces your overall deductions.

The car lease typically runs for two to four years, with fixed monthly payments that cover the vehicle, insurance, servicing, maintenance, tyres, breakdown cover, and road tax. At the end of the lease term, you return the car and can choose to lease a new one or leave the scheme.

Who is eligible for the scheme?

Eligibility criteria vary slightly between NHS Trusts and providers, but generally you must meet the following conditions:

Be a permanent NHS employee with a substantive contract
Have completed a minimum period of service, often six months
Earn a gross salary that remains above the National Minimum Wage after the salary sacrifice deduction
Hold a valid UK driving licence
Pass any credit or affordability checks required by the provider

Part-time staff can usually access the scheme, but the savings may be smaller due to lower earnings. Bank staff and those on fixed-term contracts are often excluded, though some Trusts may make exceptions.

What costs are included in the monthly payment?

One of the main attractions of the NHS salary sacrifice car scheme is that almost all running costs are bundled into a single monthly payment. According to York and Scarborough Teaching Hospitals NHS Foundation Trust, the fixed monthly amount typically includes:

Vehicle lease rental
Comprehensive motor insurance (often covering multiple named drivers)
Servicing and maintenance
Replacement tyres
MOT tests
Breakdown and recovery assistance
Road tax (Vehicle Excise Duty)

The only cost you pay separately is fuel or electricity for charging, depending on whether you choose a petrol, diesel, hybrid, or electric vehicle.

How much can you save on tax and National Insurance?

The amount you save depends on your salary band and the cost of the car you choose. Because the lease payment is deducted from your gross salary, you save both income tax and National Insurance on that amount.

For a basic rate taxpayer (20% income tax, 12% National Insurance), the combined saving is 32% on the sacrificed amount. For a higher rate taxpayer (40% income tax, 2% National Insurance), the saving is 42%.

For example, if you sacrifice £400 per month (£4,800 per year):

A basic rate taxpayer saves £1,536 per year in tax and National Insurance
A higher rate taxpayer saves £2,016 per year

However, you will also pay Benefit-in-Kind tax on the car, which reduces the overall saving. The BiK rate depends on the vehicle’s CO2 emissions, with electric vehicles attracting the lowest rates.

How does the scheme affect your NHS pension?

This is one of the most important considerations. Because salary sacrifice reduces your gross salary, it can also reduce your NHS pension contributions and the pensionable pay on which your final pension is calculated.

According to University Hospitals Birmingham NHS Foundation Trust, the scheme can have an impact on your pension or benefits, and staff are advised to consider this carefully before applying and to seek independent financial advice if necessary.

For most NHS staff in the 2015 Career Average pension scheme, your pension is based on your pensionable pay each year. If salary sacrifice reduces this pay, your pension accrual for those years will be slightly lower. The impact is usually modest for short lease periods, but it can add up over a career.

Some NHS staff choose to make Additional Voluntary Contributions to offset any pension reduction, though this reduces the net saving from the car scheme.

What is Benefit-in-Kind tax and how does it apply?

Even though you save tax and National Insurance on the salary sacrifice amount, you must pay Benefit-in-Kind tax on the car. BiK is a tax on the value of the benefit you receive, calculated as a percentage of the car’s list price based on its CO2 emissions.

For the 2025/26 tax year, electric vehicles have a BiK rate of just 3%, rising to 4% in 2026/27 and 5% in 2027/28. Petrol and diesel cars have much higher rates, often between 20% and 37%, depending on emissions.

For example, if you lease an electric car with a list price of £35,000:

BiK taxable value: £35,000 x 3% = £1,050
Tax due (basic rate): £1,050 x 20% = £210 per year
Tax due (higher rate): £1,050 x 40% = £420 per year

This is significantly lower than the BiK tax on a petrol or diesel car, which is why electric vehicles are particularly attractive under salary sacrifice schemes.

What happens if you leave the NHS or change roles?

If you leave your NHS Trust or your employment ends before the lease term is complete, you will usually face early termination charges. These can be substantial, as they cover the remaining lease payments and any costs the provider incurs in returning or re-leasing the vehicle.

Some schemes offer protection for specific circumstances such as redundancy, long-term sickness, or maternity leave, but the terms vary by provider. It is essential to read the contract carefully and understand the exit terms before committing.

If you move to a different NHS Trust, you may be able to transfer the lease if the new Trust uses the same provider and scheme, but this is not guaranteed.

Electric vehicles and the salary sacrifice scheme

Electric vehicles are by far the most cost-effective option under the NHS salary sacrifice car scheme due to their low Benefit-in-Kind tax rates. As noted by Octopus EV, salary sacrifice allows NHS staff to pay for an electric car from their gross salary, reducing taxable income and resulting in substantial tax and National Insurance savings.

In addition to lower BiK tax, electric vehicles offer:

Lower running costs (electricity is cheaper than petrol or diesel)
Reduced maintenance costs (fewer moving parts)
Exemption from congestion charges and Ultra Low Emission Zones in many cities
Access to workplace charging, which is often free

The UK government continues to support electric vehicle adoption through favourable tax treatment, and this is expected to remain in place for the foreseeable future.

Is the NHS salary sacrifice car scheme worth it?

Whether the scheme is right for you depends on your personal circumstances. It can offer excellent value if:

You are a higher rate taxpayer, as the tax savings are greater
You choose an electric vehicle, which has the lowest BiK tax
You plan to stay with your NHS Trust for the full lease term
You value the convenience of having all car costs bundled into one payment
You do not want the hassle of arranging insurance, servicing, and maintenance separately

However, the scheme may not be suitable if:

You are close to retirement and want to maximise your NHS pension
You may need to leave your Trust or reduce your hours during the lease term
You are applying for a mortgage, as the reduced gross salary on your payslip could affect affordability assessments
You prefer to own your car outright rather than lease

According to Motor Source Group, salary sacrifice often wins on simple monthly cost, especially for higher-rate taxpayers, but purchasing with an NHS discount may be better for pension protection, mortgage affordability, and flexibility.

Final thoughts

The NHS salary sacrifice car scheme can be a smart way to drive a new, reliable, and fully maintained vehicle while saving on tax and National Insurance. The savings are particularly strong for electric vehicles, which benefit from ultra-low Benefit-in-Kind tax rates.

However, it is not a decision to rush into. You should carefully consider the impact on your NHS pension, your job security, and your wider financial plans. If you are unsure, speak to your HR department, review the terms offered by your Trust’s provider, and consider seeking independent financial advice.

For many NHS staff, the scheme offers genuine value and convenience. For others, alternative options such as purchasing with an NHS discount or arranging a personal lease may be more appropriate. The key is to understand how the scheme works, what it costs, and how it fits with your long-term financial goals.