EV Salary Sacrifice & Benefit in Kind for Business

What is an Electric Car Salary Sacrifice Scheme?

A salary sacrifice electric car scheme is a great way for an employee to drive a new EV. HMRC describes a salary sacrifice arrangement as ‘an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit’. If that sounds confusing, don’t worry – stay with us and we’ll go through exactly what it means.

Salary sacrifice can be used for a host of employee-friendly benefits, including childcare vouchers, the cycle to work scheme, and gym membership. But here, we’ll be focusing on using salary sacrifice for an electric car.

Who Can Qualify for an EV Salary Sacrifice Scheme?

Most UK businesses can qualify for an electric car salary sacrifice scheme. There are no restrictions in terms of company size, so small to medium businesses qualify, as do large corporations.

The only requirements are that a business has employees and operates a PAYE payroll. Also, any salary sacrifice scheme can’t reduce an employee’s cash earnings below the national minimum wage.

How Employees Benefit from Salary Sacrifice EVs

A company electric car scheme can deliver excellent benefits for employees. A major plus is that an employee can save money by leasing an EV through salary sacrifice compared to leasing directly. Because payments are subtracted from gross salary, an employee pays less – you effectively make a monthly payment to cover the cost of the car without being taxed. You pay your share of income tax and National Insurance on the salary remaining, not the portion that pays for the car.

This has a double win, too. As part of your monthly salary has paid for the car, your taxable salary reduces – so you’d pay less tax. An employee will still need to pay BiK (Benefit-in-Kind) tax, but with an electric car this is much lower than a petrol or diesel vehicle. We’ll go through this in more detail later.

Aside from the pay and tax-related benefits, salary sacrifice schemes provide the opportunity for people to drive the latest new EVs – which perhaps wouldn’t be possible otherwise.

Employer Benefits of Salary Sacrifice for EVs

There are benefits for an employer, too. First of all, there’s no real cost to a business for setting up a salary sacrifice scheme. While the business pays the leasing company, that cost is covered by the employee.

In fact, there’s good news for the employer in the form of reduced National Insurance contributions per employee in the electric car salary sacrifice scheme.

There’s another big benefit. Apart from anything else, being able to offer a salary sacrifice scheme to help employees drive electric cars creates a strong positive impression of that company. Having this as a benefit can keep current employees happy and improve retention rates. It can also impress potential new employees. 

Discerning job searchers expect more than just a salary, so in the search to hire top talent having an EV salary sacrifice scheme could be a powerful persuading tool.

Example Cost Breakdown of an EV Salary Sacrifice

If you’re in the process of researching costs of electric cars and have the opportunity to lease one through a salary sacrifice scheme, it can be well worth comparing the cost to you versus leasing directly.

It typically works out to be cheaper to drive an electric car with salary sacrifice than leasing yourself. Costs will always vary depending on the model of car, length of the agreement, and other factors. As an example, we looked at the cost of a Personal Contract Hire (PCH) deal on a MINI Cooper Electric.

On a 48-month contract, the monthly payments were £245.34 – after an initial first rental of £3,250.

Based on the example of an employee earning an annual salary of £45,000, we used the Electric Car Salary Sacrifice Calculator from Zest to show the cost difference between using salary sacrifice and leasing the same model directly:

What is Included in Electric Car Salary Sacrifice Schemes?

When you sign up with a salary sacrifice scheme to lease an electric car, is there anything else included – beside a brand new EV? The answer is yes, though it depends on the leasing company an employer has partnered with.

Standard Benefits in EV Salary Sacrifice

Leasing an electric car by salary sacrifice usually comes with certain standard benefits – such as road tax paid (although EVs have previously been exempt from road tax, electric cars will be subject to road tax starting from April 2025) and breakdown cover.

Some providers of EVs through a salary sacrifice scheme might also include other benefits as part of the package, as standard. Others might charge an additional monthly fee for these.

Optional Extras in Salary Sacrifice EV Packages

Maintenance packages are usually available when leasing an EV, and you’ll typically have to pay extra for these. A maintenance plan for an electric car on a lease plan covers the cost of servicing the vehicle, MOTs – if any are due during the agreement term – and essential repairs. Terms and conditions are likely to vary by leasing company, so do be sure to check.

Insurance might be included as part of a package too, while some leasing companies could also offer a free home charger with an electric car – Octopus EV do – or public charging subscriptions.

Bear in mind though, that if you’re using a salary sacrifice car scheme, you’ll be limited to the packages and offers from the leasing company your employer has partnered with. If you’re leasing privately, you have more freedom to shop around for the best available deal.

Are There Any Downsides to Salary Sacrifice for EVs?

If you’ve got your heart set on driving a new electric car, there aren’t many better ways to do that than via salary sacrifice. Financially, given the likely savings involved, a salary sacrifice car scheme is widely acknowledged as the most affordable option for many people.

There are some considerations, though. One is that an employee may have a limited choice of EVs, depending on the leasing company their employer has partnered with; they might be presented with minimal model options (although they might not be restricted).

Secondly, because the lease of the EV is tied in with a salary sacrifice scheme operated by your employer, what happens if you leave the company? There may be an opt-out or return clause as part of the agreement, or there may be an opportunity to arrange a transfer of the salary sacrifice to a new employer. But, these might not be options.

It’s a good idea to check the terms and conditions with your employer and the leasing company. Circumstances can change, and being aware of the implications from the start is advisable.

Steps for Employers Setting Up a Salary Sacrifice Scheme

For employers, the first step in setting up a salary sacrifice scheme is to discuss the plan with its payroll department. Payroll can arrange the deduction, ensuring this is reported on payslips and to HMRC. Before the salary sacrifice is actioned, employer and employee must agree on the terms; it requires a change of contract and there’s likely to be a letter of agreement that needs to be signed.

The employer should then find a salary sacrifice provider to partner with. EV salary sacrifice providers can manage all the admin, provide support to the employer and employee, and provide electric cars available to lease.

When everything has been set up, the employer can present the scheme to employees.

Steps for Employees to Join an EV Salary Sacrifice Scheme

If an employer already offers a salary sacrifice scheme, it’s a simple process for an employee to join.

Just check eligibility for the scheme – as we’ve already explained, most employees should be eligible – and consider whether it’s the correct decision for you. An employee should ideally understand how salary sacrifice will impact their take-home pay, and the tax implications of it.

When all of that is in place, and the employee has signed the agreement letter, it’s then just a case of selecting an EV from the chosen salary sacrifice provider – and away you go.

If an employer doesn’t currently operate a salary sacrifice scheme, employees can request that they do. It’s free for an employer to offer one, and requires only minimal set-up and admin.

Which Companies Offer the Best EV Salary Sacrifice Deals?

There are a range of companies operating EV salary sacrifice schemes, which means lots of choice for employers. Many of these companies not only provide the electric vehicles, but include insurance, breakdown cover, and other benefits as part of the package – as well as being an excellent sounding board for support and advice.

We’d strongly urge any employer looking for a salary sacrifice partner to work with to do their own research before finding the best company to partner with. But, notable EV salary sacrifice providers include:

• Octopus Electric Vehicles
• Fleet Alliance
• SalSac
• The Electric Car Scheme
• Loveelectric

How BiK Tax Works for EVs Compared to ICE Vehicles

HMRC calculates the amount of tax owed based on the P11D value (the list price) of a vehicle and the BiK rate. The more expensive the car, the more tax you’re likely to pay – but, for EV drivers, there is positive news.

The BiK rate takes into consideration the CO2 emissions of the vehicle. So, for EVs – which have zero tailpipe emissions – the benefit in kind on electric cars will be much lower compared to ICE vehicles (those with petrol and diesel engines). The BiK is a percentage of the P11D value of the vehicle.

This means that there’s a big incentive for employees to choose an electric company car as, compared to a like-for-like petrol or diesel vehicle, they’ll pay less car tax.

How Much is Benefit in Kind Tax on an Electric Car?

The Benefit in Kind tax on electric cars is low. For the tax year 2024-25, it was set at just 2% of the vehicle’s value and although that is set to rise every year, the increase has been capped at 1% until 2028-2029.

So, the EV BiK in 2025-26 will be 3%. In 2026-27 it will be 4%, and in 2027-28 it will be 5%. In 2028-29, the 2% increase is scheduled to come into effect, marking a rise to 7% and then up to 9% in 2029-30.

That’s still low. Bear in mind that even the vehicles that fall into the next lowest category of CO2 emissions (1-50 g/km) will have a BiK rate of 19% by 2029-30. Some ICE vehicles with high CO2 emissions have a current BiK rate of 37%, and will be increasing to a minimum of 39% by 2029.

How Do I Calculate Benefit in Kind Tax on My EV?

The formula for calculating the benefit in kind on electric cars is simple. Multiply the P11D value of the vehicle – the leasing company will supply that – by the BiK percentage and then your tax band. This is currently 20% at the basic rate (up to £50,270) and 40% (£50,271 to £125,140).

There are online calculators that can do this for you, but your employer should also explain this to you when you sign up for a salary sacrifice scheme.

Are Electric Cars Still a Good Company Car Choice?

Yes – electric cars can be an excellent choice for businesses who have a fleet of vehicles. There are many reasons why, including reduced maintenance costs, lower running costs, support and grants for installing charge points, and the adoption of a more sustainable motoring strategy. Using EVs for fleet purposes can significantly reduce a company’s carbon footprint.

For fleet managers, there’s much to consider though. Read our guide to Electric Vehicles for Fleets here.