What Exactly is EV Salary Sacrifice and How Does It Work?

Electric vehicle (EV) salary sacrifice is transforming how UK employees drive brand-new electric cars while saving thousands of pounds. But what exactly is it, and how does it work? Here's everything you need to know.

What is EV Salary Sacrifice?

EV salary sacrifice is a government-approved scheme where you exchange part of your gross salary for a brand-new electric vehicle. Because the car is provided before tax and National Insurance are calculated, you pay significantly less than buying or leasing privately.

The scheme is also known as:

Salary exchange
Sal sac
Company car scheme (though technically different)
Electric car scheme

How Does EV Salary Sacrifice Work?

The process is straightforward:

1. Choose Your Electric Vehicle

Select from approved EVs or plug-in hybrids through your employer's scheme provider. Popular choices include Tesla Model 3, MG4, Polestar 2, and VW ID.4.

2. Agree the Salary Reduction

Your employer reduces your gross salary by the monthly lease cost. For example, a £500/month car = £500/month salary reduction.

3. Pay Less Tax and National Insurance

Because your taxable salary is lower, you pay less income tax (20%, 40%, or 45%) and National Insurance (8% or 2%).

4. Pay Benefit-in-Kind (BiK) Tax

You'll pay a small BiK tax on the car's value. For pure electric vehicles, this is just 2% in 2025/26 (rising to 3% in 2026/27, then 4% in 2027/28).

5. Drive Your New EV

Everything is included: insurance, servicing, breakdown cover, tyres, and often home charging installation.

Who Qualifies for EV Salary Sacrifice?

You can typically join if you're:

✅ A permanent employee (not self-employed or contractor) ✅ Earning above the National Minimum Wage after the salary reduction ✅ Employed by a company offering the scheme ✅ Paying UK income tax and National Insurance

Important: Your post-sacrifice salary must stay above minimum wage thresholds. Most schemes require minimum earnings of £18,000-£20,000.

How Much Can You Actually Save?

Savings depend on your tax bracket:

Example: £500/month Tesla Model 3

20% taxpayer: Save ~£140/month (£6,720 over 4 years)
40% taxpayer: Save ~£210/month (£10,080 over 4 years)
45% taxpayer: Save ~£235/month (£11,280 over 4 years)

The higher your salary, the bigger your savings. This is because you save your marginal tax rate plus National Insurance on the sacrificed amount.

What's Included in the Lease?

Most salary sacrifice schemes include:

✅ Brand new EV (typically 3-4 year lease) ✅ Fully comprehensive insurance ✅ Servicing and maintenance ✅ Tyres and replacements ✅ Breakdown cover (AA/RAC) ✅ Road tax (zero for EVs) ✅ Home charging installation (usually)

What Are the Downsides?

While salary sacrifice offers significant savings, consider:

Reduced Pension Contributions

Your pension is calculated on your post-sacrifice salary, reducing contributions slightly. However, you're usually still better off overall.

Mortgage Applications

Your reduced gross salary may affect mortgage affordability calculations. Apply before joining the scheme or discuss with lenders familiar with salary sacrifice.

Early Termination Fees

Leaving your employer before the lease ends may trigger termination charges (though many schemes offer flexibility).

Lease Commitment

You're typically locked in for 3-4 years. While you can't own the car, you can usually upgrade at the end.

How Does BiK Tax Work on Electric Cars?

Benefit-in-Kind (BiK) tax is calculated on:

Car value (P11D price)
BiK rate (2% for EVs in 2025/26)
Your income tax rate (20%, 40%, or 45%)

Example BiK Calculation

£40,000 Tesla Model 3 for a 40% taxpayer:

P11D value: £40,000
BiK rate: 2%
Taxable benefit: £40,000 × 2% = £800
Annual BiK tax: £800 × 40% = £320
Monthly BiK tax: £26.67

This is significantly lower than petrol/diesel cars, which face BiK rates of 20-37%.

Is EV Salary Sacrifice Worth It?

Yes, for most UK employees. The combination of tax savings, National Insurance savings, and low BiK rates makes electric vehicle salary sacrifice one of the best employee benefits available.

You're essentially getting:

A brand-new electric car
All running costs included
Tax-efficient savings of £6,000-£11,000+ over 4 years
No deposit or credit checks (in most cases)

Who Benefits Most?

40% and 45% taxpayers see the biggest savings
High-mileage drivers benefit from included maintenance and tyres
Families needing reliable, comprehensive insurance
Eco-conscious employees wanting to reduce carbon emissions

How to Get Started

Check if your employer offers a scheme (common providers: Octopus EV, Tusker, Loveelectric, Salary Sacrifice Cars)
Use our calculator to see your exact savings
Choose your vehicle from the approved list
Apply through your employer (approval typically takes 2-4 weeks)
Get your new EV delivered (usually 8-16 weeks)

Common Questions

Can I salary sacrifice if I'm already in a pension scheme?

Yes. Salary sacrifice for pensions and cars are separate arrangements.

What happens if I go on maternity/paternity leave?

Most schemes pause payments during statutory leave periods. Check your employer's policy.

Can I charge at work?

If your employer offers workplace charging, it's a tax-free benefit (as of 2025/26).

What if I already have a company car?

You may need to return it before joining the salary sacrifice scheme. Check with HR.

Is insurance really included?

Yes, fully comprehensive insurance is standard. Some schemes let you add named drivers (spouse/partner) for a small fee.

Calculate Your Savings Now

Every employee's situation is different. Use our salary sacrifice calculator to see exactly how much you could save based on:

Your salary and tax bracket
Your chosen electric vehicle
Pension contributions
Student loan repayments

Get your personalized savings estimate in 30 seconds - no signup required.

The Bottom Line

EV salary sacrifice is a win-win: employees save thousands on brand-new electric cars, while employers offer a valuable, tax-efficient benefit. With BiK rates at historic lows (2% for EVs) and government support for electrification, there's never been a better time to make the switch.

Ready to see your savings? Calculate now or speak to your HR department about joining your company's scheme.