About Author
Daanyaal Mahmood
I write about electric cars, schemes, and how they actually work.
What Is Salary Sacrifice?
Salary sacrifice is a UK tax-efficient arrangement where you agree to give up part of your gross salary in exchange for a non-cash benefit—such as a pension contribution, childcare vouchers, or a brand-new electric car. Because the payment is taken before tax and National Insurance, both you and your employer save money.
Does your employer offer a salary sacrifice scheme? Or are you an employer looking for ways to bulk out your benefits package? Either way, salary sacrifice car schemes are great ways to reduce the monthly costs of running a vehicle, especially when choosing an electric car with Fleet Evolution. They are also a fantastic way of making your employees happy, new car for lower spending? Count me in!
Here at Fleet Evolution, we work with companies of any size, whether you have two employees or 2000! We make it our mission to help the nation access brand-new electric vehicles!
There are many benefits to getting a salary sacrifice scheme at your company, and as with most schemes, you have to meet specific criteria for this to happen. It’s nothing too serious; most people signing up for our schemes will meet all of them; we just need to be sure!
Find out all you need to know about Salary Sacrifice.
How Salary Sacrifice Works in the UK (2026 Update)
Salary sacrifice is a formal change to your employment contract that you and your employer agree to. Instead of taking part of your pay as cash, you receive a non-cash benefit of equivalent value—such as a pension top-up, childcare vouchers, or an electric car lease.
For pensions, the contribution is taken from your salary before Income Tax and National Insurance are calculated. This lowers your taxable income and means you save on both tax and NI.
Some other benefits, like certain childcare vouchers, may be deducted after tax and NI. In those cases, the tax relief is smaller, but you still make a saving compared with paying directly from your take-home pay.
Whatever benefit you choose, your employer must run an approved salary sacrifice scheme, and your remaining pay must always stay above the National Minimum or Living Wage once the sacrifice has been applied.
Salary Sacrifice Eligibility Requirements:
- You’re over the age of 21
- You’ve worked in the company for a minimum of six months
- Your salary must not fall below the national minimum wage, or living wage during monthly payments after any salary sacrifice arrangements.
- You must have had a full driving licence for more than six months with no more than six current endorsement points for all vehicle drivers.
If you meet all the requirements, great news!
You can start to look forward to getting yourself a brand-new electric car!
Your employer must operate a salary sacrifice scheme for you to participate.
Worked Example of Tax and NI Savings
Under salary sacrifice, you and your employer agree to change the terms of your employment contract. This means that instead of receiving part of your salary as cash, you receive benefits of a similar value.
For example, if you earn £30,000 a year and you opt for a salary sacrifice scheme to pay for childcare, you might agree with your employer to receive £29,000 in salary and £1,000 in childcare vouchers. Hence, you get tax-free childcare. Salary sacrifice arrangements can be used for a variety of other company benefits such as cars or pensions.
This means the money comes out of your pay and not your account, making it a great way to avoid any missed payments. You might even already be making a pension contribution to a salary sacrifice scheme.
Check out complete breakdowns on the salary sacrifice car calculator.
What Will My Salary Sacrifice Contributions Include?
Every month under the salary sacrifice scheme, a small portion of your gross salary will be deducted to make the payments for your car. Your take-home pay is slightly lowered, but this means you pay less tax and national insurance contributions.
The deductions that are made will go towards:
- General use of your new vehicle
- Scheduled maintenance
- Routine tyre replacement, including puncture repairs
- Fleet management
- Road fund licence
- Comprehensive motor insurance (subject to your employer’s scheme rules).
Benefit-in-Kind (BIK) For EVs
When you receive a company car through salary sacrifice, HMRC treats it as a Benefit-in-Kind (BIK) because you’re gaining a perk in addition to your salary.
The amount of tax you pay on this benefit depends on three factors:
P11D value – the car’s list price including VAT and any factory-fitted options.
BIK percentage – set by the government based on the vehicle’s CO₂ emissions.
Your personal tax band – 20%, 40% or 45% depending on your income.
The formula is simple:
Annual BIK tax = P11D value × BIK % × your income-tax rate
Because electric cars produce zero tailpipe emissions, they qualify for much lower BIK rates than petrol or diesel models. Current and confirmed UK rates are:
2024/25 tax year: 2 %
2025/26 tax year: 3 %
2027/28 tax year: 5 %
Even as rates rise slightly over the next few years, they remain far below those for petrol cars, which can attract BIK percentages of 25–37 %.
This low BIK is one of the key reasons an electric car on salary sacrifice can cost dramatically less each month than a personally leased or financed vehicle.
Advantages And Disadvantages Of A Salary Sacrifice Electric Car Scheme
| Advantages | Disadvantages |
|---|---|
| Significant Tax & NI Savings – Payments are taken from your gross salary, lowering taxable income and reducing both Income Tax and National Insurance. | Reduced Take-Home Pay – Your monthly salary after deductions is lower, so you need to budget carefully. |
| No Large Up-Front Cost – No deposit or lump sum; the monthly lease is deducted directly from salary. | Impact on Borrowing – A lower stated gross income can slightly reduce mortgage or loan affordability. |
| All-Inclusive Package – Most schemes include insurance, servicing, tyres, breakdown cover and road tax, giving predictable motoring costs. | Employment Dependency – Leaving your job usually ends the scheme; early-termination fees may apply. |
| Cheaper Running Costs – Electricity is cheaper than petrol or diesel and EVs need less maintenance. | Eligibility Rules – Salary must remain above the National Minimum Wage and your employer must offer the scheme. |
| Environmental Impact – Driving an EV cuts tailpipe emissions and supports company ESG goals. | |
| Access to New Technology – Drive a brand-new electric car every 2–4 years with the latest battery and safety tech. | |
| Employer Benefits – Companies save on National Insurance, improve retention and can promote green credentials. | |
| No Personal Credit Check – Approval is via the employer, making it easier to access a new car even with limited credit history. | |
| Flexible Vehicle Choice – Wide range of EVs and optional extras can be bundled into the salary deduction. | |
| Boost to Pension Options – Some employers share their NI savings as extra pension contributions or other perks. |
Overall, salary sacrifice electric car schemes are a great way to save money and help the environment simultaneously. So why not take advantage of this scheme today? You never know – it might just be your best decision!
Salary Sacrifice vs Other Car Finance Options
Other car finance schemes, such as personal contract purchase (PCP) and hire purchase (HP), do not offer the same tax benefits as salary sacrifice schemes. This is because you’re still responsible for paying income tax and National Insurance on your salary, even if you’re making monthly payments towards a car.
With a salary sacrifice scheme, you’re effectively paying for your car with after-tax money. This means you can save money on income tax and National Insurance, as well as potentially reduce your monthly payments.
What Vehicle Can I Get Under A Salary Sacrifice Scheme?
With Fleet Evolution’s salary sacrifice scheme, you can choose from a whole raft of vehicles! We’re sure you’ll find the perfect car to suit your needs, and if you’re struggling, the Driverline team are on hand to help! Request your login to our quote engine and get quoting on cars!
We always recommend choosing an ultra-low emission vehicle (ULEV). Not only will they save you money on tax and fuel, but they will also save the planet! If you want to talk about getting a car with a salary sacrifice scheme, get in touch with us today.
FAQs
Can You Salary Sacrifice Statutory Maternity Pay?
Can An Employer Refuse Salary Sacrifice?
How Do I Know If My Pension Is A Salary Sacrifice?
What Is A Pension Salary Sacrifice?
What Qualifies For Salary Sacrifice?
Do I need a personal credit check?
How much can I save on average?
What other benefits qualify for salary sacrifice?
Get in Touch
Fleet Evolution offers innovative salary sacrifice schemes, helping employers and employees save on costs while promoting eco-friendly electric cars. Enjoy easy setup, free maintenance, and swift activation for any company size.