NHS lease cars: the Agenda for Change rules, the tax, and the mileage rate

An NHS lease car sits between two sets of rules. The national Agenda for Change agreement sets the principles — in Annex 13 of the NHS Terms and Conditions of Service Handbook — and leaves each employer to run its own scheme. The tax rules are HMRC’s: a lease car available for private use is a company car, with extra rules where the scheme is paid for through salary sacrifice. This page quotes Annex 13 and Section 17 as published by NHS Employers, sets the tax position beside them, and explains the rule most staff do not know: what happens to their mileage rate if they turn a lease car down.

What Annex 13 says

The starting point is that NHS staff drive their own cars: “In the NHS the default position is that employees use their own vehicles for travel in the performance of their duties, except where the employer has made specific alternative provision.” Annex 13 covers the alternative. “This Annex refers to vehicles provided to employees under a lease agreement, allowing them to use the vehicle for both NHS business and private purposes.” “The details of written lease vehicle policies, will be for local partnerships to design and agree.”

• When to consider one: “The possibility of using a lease vehicle should be considered whenever it is expected that the business miles travelled in a year will exceed 3,500 miles” miles.
• Business-only cars: “Where cars are accepted for business use only these cars should be classed as “pool” cars;”
• Tax: “the tax implications of using a lease vehicle must be explained to the employee before the arrangements start;”
• Choice of car: “If an employee chooses a vehicle which is not on the employer’s list of vehicles approved for this purpose any extra costs, over and above those incurred by employees using approved vehicles, will be paid for by the employee.”
• Low carbon: “The Sustainable Development Unit (SDU) is keen that organisations should make use, whenever it is possible and practicable, of low carbon lease vehicles”.

How an NHS lease car is taxed

NHS Employers describes a lease car as a vehicle for business and private use, “Often referred to as a ‘company car’.” For tax, that is what it is: a car made available for private use by reason of employment is taxed on a percentage of its list price. Where a trust funds the lease through salary sacrifice, the optional remuneration rules in ITEPA s.120A also apply. The ‘higher of’ rule in that section only bites where “the car's CO2 emissions figure (see sections 133 to 138) exceeds 75 grams per kilometre.” GOV.UK: “For cars with CO2 emissions of no more than 75g/km, you should always use the earnings charge under the normal benefit in kind rules.”

At 75 g/km or less the normal benefit applies whatever is sacrificed. The mechanics, worked examples with National Insurance, and the effects of salary sacrifice on statutory pay are on salary sacrifice car schemes; the full percentage table is on company car tax (BIK) rates.

The pension and pay side

Annex 13 does not deal with salary sacrifice at all, and its guidance warns: “Local partnerships looking to link lease cars and salary sacrifice schemes should consider carefully the future implications for pay and tax.” GOV.UK’s salary sacrifice guidance lists what a lower contractual salary can affect: “Salary sacrifice can affect the amount of statutory pay an employee receives. It can cause some employees to lose their entitlement altogether.” and contribution-based benefits. How pension contributions are calculated during a sacrifice is for the employer and the scheme to confirm in writing before signing.

Business mileage in a lease car

The employer owns or leases the car, so the employee is not paid the own-car rate. Annex 13 paragraph 7: “When the employee is reimbursed fuel costs at a rate per mile travelled on official business the rate per mile must be reviewed regularly to ensure that it takes account of fluctuations in fuel prices.” And paragraph 8: “Employers which set rates of reimbursement of fuel costs for employees using vehicles under “lease vehicle” arrangements, by reference to the HMRC “advisory rates,” should ensure that they refer regularly to HMRC “advisory fuel rates.””

HMRC changes these rates quarterly; the history and the rules for using them are on advisory fuel rates. One Section 17 allowance is also off the table: “With the exception of lease, pool or hire vehicle users, where other employees or members of an NHS organisation are conveyed in the same vehicle on NHS business and their fares would otherwise be payable by the employer, the passenger allowance in table 7 will be payable to the vehicle driver.”

Lease car, own car or pool car: the rates side by side

Declining a lease car: the reserve rate

Section 17 links the own-car rate to lease car offers:

Table 7 sets that reserve rate at 30p a mile, against 59p for the first 4,500 miles on the standard rate. On 5,000 business miles the difference is £1,335 a year. And if the employer withdraws the offer instead, “If the employer withdraws the offer of a lease vehicle in line with the provisions of annex 13 the employee is entitled to the appropriate rates of reimbursement in table 7.”

When refusing is not unreasonable

The handbook’s guidance answers the obvious question directly:

So an employee offered a lease car only on salary sacrifice terms can refuse it and keep the standard rate. Whether a refusal on other grounds is reasonable is for the employer and employee to agree, as the reserve rate paragraph says.

Leaving, moving trust, and Wales

• Early termination: “Local policies should set out details of early termination costs and the circumstances in which these would apply.” Annex 13 asks both sides to look for ways for the employer to keep the car, for example “An example of circumstances when this may be appropriate is when an employee with a lease vehicle transfers to a job with another NHS employer in which there is a continuing need for significant official travel.”
• Wales: one national scheme. “The All Wales Lease Car scheme is an option offered to all employees of the Health Board/Trust who are required to be mobile and where the Health Board/Trust considers there is an economic case to provide a Lease Car.” “The Health Board/Trust will consider providing a Leased vehicle to staff who travel 1000 business miles or more, with permanent contracts of employment.”

Before signing a lease car agreement

• Read the employer’s local lease vehicle policy; Annex 13 leaves the details to it.
• Ask for the tax implications in writing, as Annex 13 requires, including the benefit-in-kind figure.
• If it is salary sacrifice, ask how pension contributions and statutory pay are calculated.
• Check the early termination terms, including on moving to another NHS employer.
• Compare the fuel-only rate with what you would receive at 59p and 36p on your own car.

The own-car rates and how they compare with HMRC’s approved amount are on NHS mileage rates. This page quotes the NHS Terms and Conditions of Service Handbook, NHS Employers guidance and HMRC as read on 2026-10-05; it is not tax or employment advice.

Common questions