How salary sacrifice works for electric vehicles, what it saves employees and employers, and how small businesses can set up a scheme.
A simple arrangement that uses low EV tax rates to reduce the cost of driving a new electric car.
EV salary sacrifice has become one of the most popular ways for employees to access a brand new electric car at a reduced cost. Salary sacrifice is an agreement between you and your employer. You give up a portion of your gross salary each month, and in return your employer leases a brand new electric vehicle for you. The car is yours to drive for the duration of the lease, typically 2-4 years.
Because the salary deduction comes from your gross pay (before tax), you save income tax and National Insurance on the amount you sacrifice. Your employer also saves on employer National Insurance contributions, which is why many businesses are willing to offer the scheme.
The key to why this works so well for electric vehicles is the benefit-in-kind tax rate. HMRC charges you tax on the benefit of having a company car, but for fully electric vehicles the BiK rate is just 4% of the car’s list price in 2026/27. For a petrol car, that rate would be 23% or higher. This difference is what makes salary sacrifice significantly cheaper than leasing an EV privately.
Your employer arranges the lease, insures the vehicle (typically included in the lease package), and deducts the sacrifice from your monthly payroll. You drive the car and pay the small BiK tax charge. At the end of the lease, you return the car and can start a new agreement if you choose.
The table below shows what an employee would pay each month for a £40,000 electric car through salary sacrifice, and how much they save compared to leasing the same car privately. We show the figures for both a basic rate (20%) and higher rate (40%) taxpayer.
Based on stated assumptions. Individual costs will vary.
| Item | Basic rate (20%) | Higher rate (40%) |
|---|---|---|
| Annual BiK value (£40,000 x 4%) | £1,600 | £1,600 |
| Monthly BiK tax | £26.67 | £53.33 |
| Monthly salary sacrifice | £500.00 | £500.00 |
| Income tax saved (on £500) | £100.00 | £200.00 |
| Employee NI saved (on £500) | £40.00 | £40.00 |
| Net monthly cost (sacrifice − tax saved − NI saved + BiK) | £386.67 | £313.33 |
| Equivalent personal lease cost (for comparison) | ~£500+ | ~£500+ |
Employee monthly saving vs personal lease: £113-187+
Employer NI saving: £75/month (15% of £500 sacrificed)
Assumptions stated above. BiK rate: HMRC. Tax and NI rates: HMRC 2026/27.
In simple terms, a basic rate taxpayer would pay around £387 per month for a brand new £40,000 electric car, saving over £113 per month compared to a personal lease. A higher rate taxpayer saves even more, paying around £313 per month for the same car. The savings come from not paying income tax or National Insurance on the portion of salary you give up, while the tax you pay on the car itself (the benefit-in-kind charge) is kept very low by the 4% EV rate.
We are building a salary sacrifice calculator tool to help employees estimate their monthly costs based on their salary, tax band, and chosen vehicle.
Confirmed rates from HMRC through 2029/30. Electric vehicles remain far below petrol and diesel.
| Tax Year | Electric Vehicle | Petrol / Diesel (typical) |
|---|---|---|
| 2025/26 | 3% | 33% |
| 2026/27 | 4% | 34% |
| 2027/28 | 5% | 35% |
| 2028/29 | 7% | 36% |
| 2029/30 | 9% | 37% |
Source: HMRC. Rates confirmed in the 2024 Autumn Budget and 2026 Spring Statement. Petrol/diesel figures shown are the minimum rate for vehicles with CO2 emissions above 170g/km.
Petrol and diesel rates vary by CO2 emissions from 23% upwards. The figures shown represent the higher end of the range for typical combustion vehicles.
Why salary sacrifice works in your favour for electric vehicles.
Under HMRC’s Optional Remuneration Arrangement (OpRA) rules, when you receive a benefit through salary sacrifice, you are taxed on whichever is greater: the benefit-in-kind value of the car, or the amount of salary you give up.
For electric vehicles, this almost always works in the employee’s favour. A £40,000 EV has a BiK value of just £1,600 per year (4% of £40,000). Even if you sacrifice £6,000 per year in salary to fund the lease, you are only taxed on £1,600 because the BiK value is lower than the salary sacrificed.
For petrol and diesel cars, OpRA often eliminates the advantage of salary sacrifice because the BiK value (23%+ of the car’s price) can exceed the salary sacrificed. This is what makes EVs uniquely well suited to salary sacrifice arrangements.
What SMEs need to know about offering salary sacrifice to employees.
Salary sacrifice scheme providers handle the leasing, insurance, and administration. They work with multiple leasing companies to offer employees a choice of vehicles. Compare providers on fleet size minimums, the range of vehicles available, insurance inclusion, and administration fees.
Decide which employees are eligible, whether there is a maximum vehicle value, and how long the salary sacrifice agreements will run (typically 2-4 years). Your provider will help structure these terms.
Your payroll system needs to process the monthly salary deductions. Most scheme providers integrate with standard payroll software or provide the figures for manual processing.
Employees need to understand what salary sacrifice is, what it costs them, and what happens if they leave. Your scheme provider will typically supply materials and calculators to help employees make informed decisions.
The scheme provider handles vehicle orders, insurance, maintenance arrangements, and end-of-lease returns. Your role as employer is primarily payroll processing and approving new applications.
Brumble does not recommend specific salary sacrifice providers. This guidance is to help you understand the process and evaluate your options.
Important considerations before committing to a salary sacrifice arrangement.
If an employee leaves before the lease ends, there is usually an early termination charge to cover the remaining lease payments. This can be significant on longer agreements. Check the provider’s early exit terms before signing.
Salary sacrifice reduces gross pay, which can reduce pension contributions if they are calculated as a percentage of salary. Some employers calculate pension on pre-sacrifice salary to avoid this. Confirm your employer’s approach.
Lenders see the reduced salary on your payslip. Most are familiar with salary sacrifice, but it can affect affordability assessments. If you are planning a mortgage application, discuss this with your broker beforehand.
An employee’s post-sacrifice pay cannot fall below the National Minimum Wage. For lower-paid employees, this limits how much salary can be sacrificed and may make the arrangement unviable for higher-value vehicles.
Most scheme providers run a soft credit check on employees before approving an application. This does not affect credit scores, but employees should be aware it forms part of the process.
Salary sacrifice leases typically include fully comprehensive insurance, but there may be an excess payable if the employee makes a claim. Check what the excess is and whether it can be reduced.
More tools and guides for drivers and businesses going electric.
Common questions about salary sacrifice for electric vehicles.
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Ryan is the founder of Brumble and has over a decade of experience in the UK motor finance and insurance industry. He created Brumble to make it easier for UK drivers to understand the insurance and finance world by cutting through the jargon.
Originally published: 17 June 2026 · Last updated: 17 June 2026
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