Company Car Tax & BiK · 4 min read

Salary sacrifice for electric cars: how the scheme works

A salary sacrifice arrangement works by redirecting part of your gross pay to cover an employer-funded car lease. Because the deduction happens before income tax and National Insurance are applied, the real cost to you is lower than the headline lease payment.

The core mechanics

Your employer enters a lease agreement for the car. Your gross salary is reduced by the monthly lease cost. You pay BiK tax on the car's P11D value at the appropriate rate (3–5% for an EV). Both income tax and National Insurance are saved on the sacrificed amount — the combined saving depends on your tax band.

An illustrative example

A 40% taxpayer sacrificing £500/month saves £200/month in income tax and around £69/month in National Insurance contributions. The BiK tax on the car offsets some of this, but with EV rates so low, the net saving is typically substantial. Lower-rate taxpayers also benefit, though the saving is smaller. The exact figures depend on the car's P11D value, your tax band and your employer's scheme.

Employee protections

If your salary after sacrifice would fall below the National Living Wage, the employer must adjust the arrangement. Mortgage affordability calculations may be affected since your stated salary is lower. These are factors to discuss with your employer or financial adviser before committing.

What cars are available

Most salary sacrifice schemes are restricted to zero or ultra-low emission vehicles — which in practice means EVs. The employer selects an approved list of models and lease terms. EVTrader can help you understand the electric models available and their P11D values before you start the salary sacrifice conversation with your employer.

Questions about whether salary sacrifice works for your income level? Ask via WhatsApp.

Frequently asked questions

Can any employer offer a salary sacrifice EV scheme?

Any employer can set up a salary sacrifice scheme, but they must have at least one employee and the arrangement must comply with HMRC guidelines. Many use a fleet management company to administer it.

Does salary sacrifice affect my state pension entitlement?

Because salary sacrifice reduces your NI-liable pay, it can marginally reduce your state pension record in some cases. The impact is usually small but worth checking if you are close to the minimum qualifying years.

What happens if I leave my job mid-lease?

This depends on the employer's scheme terms. Many schemes include early termination cover or allow the employee to take over the lease personally. Check the scheme rules before signing.