Salary Sacrifice Car Scheme Guide 2026/27: EV Savings, Tax and BIK Explained

A salary sacrifice car scheme is one of the most cost-effective ways for employees to drive a new or used electric car. It can help employees reduce the monthly cost of an EV by using part of their gross salary, while giving employers a valuable benefit that supports recruitment, retention and sustainability goals.

With low Benefit-in-Kind tax rates for electric cars, EV salary sacrifice remains a popular choice for businesses that want to help employees make the switch to electric driving without the need for a company car policy.

In this guide, we explain how salary sacrifice car schemes work, why electric cars are especially well-suited to salary sacrifice, what employees could save, the BIK rates for 2026/27 and beyond, and what employers should consider before launching a scheme.

In this guide

• What is a salary sacrifice car scheme?
• How does the scheme work?
• EV salary sacrifice tax savings
• 2026/27 electric car BIK rates
• Salary sacrifice vs personal leasing
• Employer and employee benefits
• Risks and key considerations
• Salary sacrifice FAQs

What is a salary sacrifice car scheme?

A salary sacrifice car scheme allows an employee to give up part of their gross salary in exchange for a non-cash benefit – in this case, a car.

Instead of paying for a car from their net take-home pay, the employee’s monthly salary sacrifice is taken before Income Tax and National Insurance are calculated. This can reduce the effective monthly cost of the car.

Salary sacrifice can be used for different types of employee benefits, but electric cars are particularly attractive because they currently attract much lower Benefit-in-Kind tax than petrol or diesel company cars.

For employees, this can make driving an electric car more affordable. For employers, it can create a compelling benefit without the business needing to operate a traditional company car scheme for every employee.

How does a salary sacrifice car scheme work?

A salary sacrifice car scheme is usually set up by the employer through a specialist provider, such as Fleet Alliance.

The process typically works like this:

1. The employer launches the scheme for eligible employees.
2. Employees access an online portal to view available cars and monthly costs.
3. The employee chooses a car, mileage and contract term.
4. The employer leases the vehicle and provides it to the employee as a benefit.
5. The monthly salary sacrifice is taken from the employee’s gross salary.
6. The employee pays Benefit-in-Kind tax on the car.
7. The employee drives the car for the agreed term, usually with servicing, maintenance, breakdown cover and other support included.

The key advantage is that the employee’s monthly contribution is made before Income Tax and National Insurance, which can reduce the overall cost compared with funding a car privately.

Why electric cars are ideal for salary sacrifice

Salary sacrifice car schemes can technically be used for different types of cars, but electric vehicles are usually the most tax-efficient option.

That is because fully electric cars have much lower Benefit-in-Kind tax rates than petrol, diesel or many plug-in hybrid vehicles. The lower the BIK rate, the lower the tax charge for the employee.

This is why many UK salary sacrifice car schemes are now focused primarily on electric cars.

For employees, the benefits can include:

• Lower monthly costs compared with leasing a car personally
• No upfront deposit in many schemes
• Access to new or used electric cars
• Maintenance and servicing included
• Breakdown cover included
• Road tax support depending on the scheme structure
• A simple monthly deduction from salary
• Reduced running costs compared with petrol or diesel

For employers, EV salary sacrifice can support:

• Employee benefits strategy
• Recruitment and retention
• ESG and sustainability targets
• Carbon reduction plans
• A transition away from petrol and diesel vehicles
• Support for employees who do not qualify for a company car

EV salary sacrifice and tax savings explained

The main employee saving comes from the fact that the monthly sacrifice is taken from gross salary before Income Tax and National Insurance.

For example, if an employee sacrifices part of their salary for an electric car, they may reduce the amount of salary on which they pay Income Tax and National Insurance.

The employee will still pay Benefit-in-Kind tax because the car is treated as a company car benefit. However, because the BIK rate for fully electric cars is low compared with petrol or diesel vehicles, the tax charge can be relatively modest.

This is what makes electric car salary sacrifice so attractive: the employee can benefit from tax and National Insurance savings on the monthly lease cost, while paying a relatively low BIK charge.

The exact saving depends on several factors, including:

• The employee’s salary
• Their tax band
• The car selected
• The car’s P11D value
• The lease term
• Annual mileage
• Whether insurance is included
• The employer’s scheme rules
• The applicable BIK rate

Higher-rate and additional-rate taxpayers may see larger savings in cash terms because they pay a higher rate of Income Tax.

2026/27 BIK rates for electric cars

Benefit-in-Kind tax is central to understanding the cost of an electric car salary sacrifice scheme.

For fully electric cars, the BIK rate remains significantly lower than for petrol and diesel vehicles, although it is scheduled to rise gradually over the coming years.

This means EV salary sacrifice remains attractive in 2026/27, but employees and employers should be aware that the tax position will become slightly less generous over time, making it important to capitalise on this benefit now.

Even with these increases, fully electric cars are expected to remain significantly more tax-efficient than petrol and diesel company cars.

Salary sacrifice car scheme vs personal leasing

Many employees compare salary sacrifice with personal leasing because both involve paying a fixed monthly amount for a car.

The difference is that a personal lease is paid from net salary, after tax and National Insurance. A salary sacrifice car is funded through gross salary, before Income Tax and National Insurance.

For many eligible employees, EV salary sacrifice can be cheaper than personal leasing. However, the exact comparison depends on the car, lease pricing, tax band, mileage, scheme structure and whether extras such as insurance and maintenance are included.

How much could employees save?

There is no single saving that applies to every employee. Salary sacrifice savings vary by employee and vehicle.

As a general rule, savings can be stronger where:

• The employee pays a higher rate of tax
• The vehicle has a competitive lease cost
• The car has a low BIK rate
• Maintenance and servicing are bundled into the monthly cost
• The employee would otherwise lease or finance a car privately
• The employee chooses a used EV or lower-cost model

A typical salary sacrifice quote should show the employee:

• Gross monthly sacrifice
• Estimated Income Tax saving
• Estimated National Insurance saving
• BIK tax cost
• Net monthly impact on take-home pay
• Included services
• Contract length and mileage
• Early termination rules

The most useful figure for employees is not the gross lease cost, but the estimated net monthly impact on take-home pay after tax, National Insurance and BIK are taken into account.

Benefits for employees

A salary sacrifice car scheme can make electric driving more accessible and more predictable.

Key employee benefits include:

Lower monthly cost
Because payments are made from gross salary, employees can reduce the effective cost of driving an electric car compared with many private funding options.

No large upfront payment
Many schemes do not require the same upfront deposit that employees may need with a personal lease or finance agreement.

Fixed monthly budgeting
Costs are usually bundled into one monthly amount, making it easier for employees to budget.

Access to electric vehicles
Employees who may not qualify for a company car can still access a new or used EV through their employer’s scheme.

Maintenance and support included
Servicing, maintenance, tyres and breakdown cover are often included, reducing unexpected running costs.

Lower running costs
Charging an EV can be cheaper than refuelling a petrol or diesel car, particularly where the employee can charge at home or at work.

A simpler route into EV driving
For employees who are unsure about making the switch, salary sacrifice can provide a supported and structured way to move into electric driving.

Benefits for employers

Salary sacrifice car schemes are not just an employee benefit. They can also help employers strengthen their overall reward, mobility and sustainability strategies.

Key employer benefits include:

Recruitment and retention
A salary sacrifice car scheme can make an employer’s benefits package more attractive, particularly for employees who want affordable access to an electric car.

Support for sustainability goals
Helping employees switch to electric vehicles can support carbon reduction and wider ESG objectives.

Wider access than a company car scheme
A salary sacrifice scheme can be made available to eligible employees beyond those who qualify for a traditional company car.

Potential National Insurance savings
Employers may reduce their employer National Insurance liability because the employee’s gross salary is reduced, although the overall position depends on scheme design and employer policy.

Employee engagement
EV salary sacrifice can be a visible, practical benefit that employees value, especially during periods of higher living costs.

Managed administration
With the right provider, employers can outsource much of the scheme setup, employee support, vehicle procurement, compliance guidance and ongoing administration.

Risks and considerations

Salary sacrifice can be highly effective, but it needs to be set up correctly.

Employers and employees should consider the following points.

National Minimum Wage
A salary sacrifice arrangement must not reduce an employee’s cash earnings below National Minimum Wage or National Living Wage levels. Employers need processes in place to check eligibility before an employee joins the scheme and throughout the contract.

Take-home pay
Salary sacrifice reduces gross salary, which affects take-home pay. Employees should check the net monthly impact before committing.

Pension and salary-linked benefits
Because salary sacrifice reduces contractual salary, it may affect pension contributions, life cover, overtime, bonuses, maternity pay, sick pay or mortgage affordability depending on how these are calculated.

Leaving employment
Employees should understand what happens if they resign, are made redundant or otherwise leave the business before the end of the agreement.

Early termination
A good scheme should explain early termination charges and whether protection is included for certain circumstances.

Mileage
Employees should choose realistic annual mileage. Excess mileage charges can apply if the car is returned over the contracted mileage.

Charging
Employees should consider how and where they will charge the car, including home, workplace and public charging options.

Insurance
Some schemes include insurance, while others require employees to arrange their own. This should be clear before the employee orders a vehicle.

What happens if an employee leaves?

One of the most common questions about salary sacrifice car schemes is what happens if an employee leaves their job before the end of the vehicle agreement.

The answer depends on the scheme rules and the protection included.

Possible outcomes may include:

• The car is returned and an early termination process applies
• The employee pays an early termination charge
• The employer absorbs or insures against certain early termination costs
• The employee may be able to transfer the car in limited circumstances
• The car may be reallocated, depending on the employer’s policy and provider terms

This is why scheme design matters. Employers should choose a provider that can explain the early termination position clearly and help reduce financial risk.

Employees should always review the scheme documentation before ordering a car.

Can employees choose a used electric car?

Some salary sacrifice schemes now offer used electric cars as well as new vehicles.

Used EV salary sacrifice can be attractive because used electric cars may have a lower monthly lease cost than brand-new models. This can make the scheme accessible to more employees and help employers increase uptake.

Used EVs may be especially suitable for employees who want:

• A lower monthly cost
• A shorter lead time
• Access to premium EVs at a reduced cost
• A more sustainable vehicle choice
• A practical first step into electric driving

Employers should check whether used EVs are available through their provider and whether maintenance, warranty and support are included.

Is a salary sacrifice car scheme worth it in 2026/27?

For many eligible employees, a salary sacrifice car scheme can still be one of the most cost-effective ways to drive an electric car in 2026/27.

It can be particularly worthwhile where the employee:

• Wants to drive an electric car
• Has access to an employer scheme
• Earns enough for the sacrifice to remain compliant
• Would otherwise lease or finance a car privately
• Values having maintenance and support included
• Understands the impact on take-home pay and salary-linked benefits

For employers, a scheme can be worthwhile if it supports employee benefits, recruitment, retention, sustainability and fleet transition goals.

However, the quality of the scheme matters. Employers should look for clear employee communications, competitive vehicle pricing, risk protection, strong administration and a provider that can support both the business and its employees throughout the vehicle term.

How Fleet Alliance supports salary sacrifice car schemes

Fleet Alliance helps businesses set up and manage salary sacrifice car schemes designed to make electric driving more accessible for employees.

Our salary sacrifice solution can support employers with:

• Scheme design and implementation
• Employee engagement and communication
• Access to new and used electric vehicles
• Competitive vehicle pricing
• Online quotation and ordering tools
• Maintenance and support packages
• Early termination guidance
• Ongoing account management
• Help for employees choosing the right EV

For employees, the scheme can provide a simple way to compare electric cars, understand the estimated monthly impact on take-home pay and access a vehicle package that may include servicing, maintenance and breakdown support.

For employers, Fleet Alliance can help create a salary sacrifice car scheme that is easy to launch, easy to manage and attractive to employees.

Salary sacrifice car scheme FAQs

Salary sacrifice car scheme FAQs

A salary sacrifice car scheme allows an employee to give up part of their gross salary in exchange for a car provided through their employer. The monthly sacrifice is taken before Income Tax and National Insurance are calculated.

What is EV salary sacrifice?

EV salary sacrifice is a salary sacrifice car scheme focused on electric vehicles. It is popular because fully electric cars have low Benefit-in-Kind tax rates compared with petrol and diesel cars.

Is electric car salary sacrifice worth it?

It can be worth it for many eligible employees, particularly those who want an EV and would otherwise lease or finance a car privately. The saving depends on salary, tax band, vehicle choice, BIK rate and scheme terms.

How much can I save with salary sacrifice?

Most PHEV bands increase to 18% in 2028/29 and 19% in 2029/30 — often much higher than EVs by then.

How much can I save with salary sacrifice?

Savings vary by employee. The best way to understand the saving is to compare the gross monthly sacrifice, tax and National Insurance savings, BIK tax charge and the final net impact on take-home pay.

What is Benefit-in-Kind tax?

Benefit-in-Kind tax is the tax an employee pays when they receive a taxable benefit from their employer, such as a company car. For electric cars, the BIK rate is currently much lower than for many petrol or diesel vehicles.

What is the electric car BIK rate in 2026/27?

For fully electric cars, the BIK rate is 4% in 2026/27. It is scheduled to rise to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.

Can salary sacrifice reduce pay below minimum wage?

No. A salary sacrifice arrangement must not reduce an employee’s cash earnings below National Minimum Wage or National Living Wage levels.

Does salary sacrifice affect pension contributions?

It can do, depending on how the employer calculates pension contributions. Employees should check whether pension contributions are based on pre-sacrifice or post-sacrifice salary.

Does salary sacrifice affect mortgage applications?

It may affect affordability calculations because salary sacrifice reduces contractual salary. Employees planning a mortgage or remortgage should consider this before joining a scheme.

What happens if I leave my job?

This depends on the scheme rules. There may be an early termination process or charge, although some schemes include protection for certain circumstances. Employees should check the terms before ordering a car.

Is insurance included?

Some salary sacrifice schemes include insurance and some do not. Employees should check whether insurance is included in the monthly cost or needs to be arranged separately.

Can I get a used EV through salary sacrifice?

Some schemes offer used electric cars. A used EV may reduce the monthly cost and make salary sacrifice more affordable for a wider range of employees.

Is salary sacrifice better than personal leasing?

For many eligible employees, EV salary sacrifice can be cheaper than personal leasing because payments are taken from gross salary. However, the best option depends on the employee’s circumstances, tax band, vehicle choice and scheme terms.

Does a salary sacrifice car scheme cost the employer money?

Many schemes can be designed to be cost-neutral, although the exact position depends on provider terms, employer policy, administration, risk protection and National Insurance treatment.

Who is eligible for a salary sacrifice car scheme?

Eligibility is set by the employer and scheme provider. Employees usually need to meet salary, affordability and National Minimum Wage requirements.