The short answer
- You give up some salary, so you pay less income tax and National Insurance.
- You pay company car tax on the car, but electric cars are taxed at only 4% of the list price in 2026/27.
- On £45,000, a £450-a-month sacrifice for a £40,000 car costs about £350.67 a month in take-home pay, 22% less than leasing privately.
- Higher earners save more: about 30% on £70,000 and 44% on £110,000.
How EV salary sacrifice works
- Your employer leases an electric car, usually through a specialist provider.
- You agree to a lower salary for the length of the lease, typically two to four years.
- Because your salary is lower, you pay less income tax and National Insurance.
- The car is a company car, so you pay benefit in kind tax on it at 4% of its list price.
The net cost to you is the salary you give up, less the tax and National Insurance you save, plus the company car tax. Your employer also saves employer National Insurance, and some pass part of that on.
Why it only works well for electric cars
Cars provided through salary sacrifice are normally taxed on the higher of the company car benefit and the salary given up. These are called optional remuneration arrangement rules. Cars with CO2 emissions of 75 g/km or less are exempt, so an electric car is taxed only on its small company car benefit. A petrol car would be taxed on the full salary sacrificed, wiping out the saving.
A worked example
- Salary given up: £450 × 12£5,400
- Income tax saved at 20%−£1,080
- National Insurance saved at 8%−£432
- Company car tax: £40,000 × 4% × 20%+£320
That is £350.67 a month. Leasing the same car privately for £450 a month from take-home pay would cost £5,400 a year, so the saving is £1,192 a year, or 22%.
Savings by income
| Salary | Tax and NI saved | Car tax | Net cost a year | Saving vs private |
|---|---|---|---|---|
| £45,000 | £1,512 | £320 | £4,208 | 22% |
| £70,000 | £2,268 | £640 | £3,772 | 30% |
| £110,000 | £3,348 | £960 | £3,012 | 44% |
| £150,000 | £2,538 | £720 | £3,582 | 34% |
Higher-rate taxpayers save 40% income tax but only 2% National Insurance on the sacrificed salary, so they save more overall than basic-rate taxpayers, even though their company car tax doubles.
Earning over £100,000
Between £100,000 and £125,140, you lose £1 of Personal Allowance for every £2 of income, creating an effective tax rate of 60%. A sacrifice that brings your income down within this band saves tax at 60%. On £110,000, the same car costs just £251 a month, a 44% saving. Bringing income below £100,000 can also restore tax-free childcare and funded childcare hours.
Scottish taxpayers
Scottish taxpayers save tax at Scottish rates. On £45,000 in Scotland, part of the sacrifice is saved at 42% and part at 21%, so the same car costs about £324.08 a month, a 28% saving. The company car tax is £336 a year.
As company car tax rises
| Tax year | Benefit rate | Net cost a year |
|---|---|---|
| 2026/27 | 4% | £4,208 |
| 2029/30 | 9% | £4,608 |
The rate for electric cars rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. Even at 9%, the scheme in the example still saves £792 a year compared with a private lease. A higher-rate taxpayer would save £828.
What the monthly cost includes
Most schemes bundle the lease with insurance, servicing, tyres, breakdown cover and road tax. That makes them easier to compare with the full cost of running a car privately, not just a lease. When comparing, add the cost of insuring and maintaining the car yourself to any private lease quote.
Knock-on effects of a lower salary
- Pension
- Contributions based on salary may fall, unless your employer uses your pre-sacrifice pay
- Mortgage
- Lenders may look at the lower salary
- Statutory pay
- Maternity and sick pay can be lower
- Student loan
- Repayments fall with your salary
- Child Benefit
- Less High Income Child Benefit Charge
- Allowances
- Personal Allowance and childcare support restored below £100,000
The minimum wage limit
A salary sacrifice cannot take your pay below the National Living Wage, which is £12.71 an hour for workers aged 21 and over from April 2026. For a full-time worker on 37.5 hours a week, that is about £24,785 a year. Lower earners may find a scheme limits the car they can choose, or turns them down.
Leaving your job or ending early
The lease is between your employer and the provider. If you leave, go on long-term sick leave or parental leave, most schemes have a policy covering early termination, but some charge a fee or require you to buy out the lease. Read the terms carefully, especially if you might change jobs in the next few years.
Ask about early termination cover
Check what happens if you resign, are made redundant, or go on maternity leave, and whether there is a cost.
Charging at home and work
Many schemes offer a home charger, sometimes in the package. Charging at work is tax-free for employees. If your employer pays for home charging, it is not taxed either. For business journeys you pay for yourself, your employer can reimburse 7p a mile for home charging or 15p a mile for public charging from September 2026 without tax.
Comparing with other ways to get a car
- Private lease: paid from take-home pay, so no tax saving.
- Buying on finance: you own the car at the end, but pay from taxed income and carry the depreciation risk.
- Company car: no salary sacrifice, but you still pay company car tax.
- Cash allowance: taxed as salary, with National Insurance.
The company car tax calculator shows the tax on other cars.
Choosing a car
The company car tax depends on the list price, so a pricier car costs more in tax as well as in salary. With a 4% rate, each extra £10,000 of list price adds £400 to the taxable benefit: £80 a year in tax for a basic-rate taxpayer and £160 for a higher-rate taxpayer. That is modest compared with the extra lease cost, which usually matters more.
Look at the real-world range, the charging speed and the boot space as well as the price. A car that suits your journeys for the next three or four years is worth more than a slightly cheaper one that does not.
How to sign up
- Check your employer offers a scheme. Many use a provider with an online quote tool.
- Get a quote for the car, lease length and mileage you want. Note the gross monthly sacrifice.
- Enter it here with your salary and the car’s list price to see your real cost.
- Read the terms about early termination, mileage limits and damage charges at the end.
- Sign the salary sacrifice agreement. Your payslip will show a lower salary and a company car benefit.
Delivery often takes a few weeks, and the sacrifice starts when you get the car.
Insurance and named drivers
Insurance is normally included and arranged by the provider. Check who else can drive the car: many schemes let you add a partner or family members, sometimes for a small extra charge. Check the excess you would pay after a claim, and whether a courtesy car is included if yours is off the road.
Is it right for you?
- Income
- Comfortably above the minimum wage
- Job
- Settled, with no plan to move soon
- Driving
- Within the scheme's mileage limit
- Mortgage
- Applying soon, when a lower salary matters
- Family
- Maternity or paternity leave coming up
- Pension
- Contributions based on the lower salary
Common mistakes
- Comparing with a lease price alone. Add insurance, servicing and tyres to a private quote before comparing.
- Forgetting the company car tax. It is small, but it rises every year to 2029/30.
- Ignoring the end-of-lease condition. Damage beyond fair wear and tear is charged when the car goes back.
- Not checking the pension. A lower pensionable salary can quietly cost more than the car saves.
- Choosing a high mileage you will not use. Higher mileage limits raise the monthly cost.
How employers set up schemes
Employers usually work with a specialist provider who arranges the lease, insurance and servicing and handles the paperwork. The employer saves 15% employer National Insurance on the salary sacrificed but pays 15% Class 1A National Insurance on the car benefit, which is small for an electric car. Many employers pass some of the saving on to employees or use it to cover the cost of the scheme.
If your employer does not offer a scheme, it is worth asking. Providers often set them up at little or no cost to the employer, and they are popular as a benefit that helps staff move to electric cars.
Will the pension salary sacrifice cap affect cars?
From April 2029, the government plans to charge National Insurance on pension contributions made through salary sacrifice above £2,000 a year. That change is about pensions. It does not apply to electric cars, which keep their full tax and National Insurance saving under current rules.