What is salary sacrifice for cars?
Salary sacrifice for cars means your employer leases a vehicle and provides it to you as a company car. You agree to reduce your gross salary to cover the lease cost. The lease includes insurance, maintenance, breakdown cover, and road tax.
Because you sacrifice salary, you save Income Tax and National Insurance on the lease cost. However, because you receive a company car, you pay Benefit-in-Kind (BiK) tax.
Electric vehicles have a 2% BiK rate for 2025-26. This makes EVs far cheaper than petrol or diesel cars under salary sacrifice.
How much do you save?
Your saving depends on two things:
- Tax and NI relief on the sacrificed salary (32% for basic rate, 42% for higher rate)
- BiK tax you pay on the car (2% of the list price, taxed at your marginal rate)
Example: You lease a £40,000 EV. The annual lease cost is £6,000. You sacrifice £6,000 salary. You're a higher-rate taxpayer.
- Tax and NI saving: £2,520 (42% of £6,000)
- BiK charge: 2% of £40,000 = £800. Tax on £800 at 40% = £320
- Net saving: £2,520 - £320 = £2,200
- Net cost to you: £6,000 - £2,200 = £3,800
You get a £6,000 lease (insurance, maintenance included) for £3,800 take-home cost. That's a 37% saving.
Benefit-in-Kind rates
BiK rates depend on the car's CO2 emissions:
| Vehicle type | 2025-26 BiK | 2026-27 BiK | 2027-28 BiK |
|---|---|---|---|
| Electric (0g/km CO2) | 2% | 3% | 4% |
| Plug-in hybrid (1-50g/km, 130+ mile range) | 5% | 6% | 7% |
| Plug-in hybrid (1-50g/km, 70-129 mile range) | 8% | 9% | 10% |
| Plug-in hybrid (1-50g/km, 40-69 mile range) | 12% | 13% | 14% |
| Petrol/diesel (51-54g/km) | 15% | 16% | 17% |
| Petrol/diesel (75-94g/km) | 21% | 22% | 23% |
| Petrol/diesel (95-130g/km) | 25-30% | 26-31% | 27-32% |
| Petrol/diesel (170g/km+) | 37% | 37% | 37% |
The BiK charge is applied to the car's list price, not the lease cost. A £50,000 EV has a BiK charge of £1,000 (2% of £50,000), regardless of the monthly lease cost.
Salary sacrifice car vs personal lease
Compare salary sacrifice to leasing a car personally:
| Factor | Salary sacrifice | Personal lease |
|---|---|---|
| Tax relief | Yes (32-42% on lease cost) | No |
| BiK tax | Yes (2% of list price for EVs) | No |
| Insurance included | Yes | Usually extra |
| Maintenance included | Yes | Usually extra |
| Early exit fee | Yes (if you leave job) | Yes (lease termination fee) |
| Mileage limits | Typically 8,000-15,000/year | Typically 8,000-15,000/year |
Salary sacrifice is usually cheaper for higher-rate taxpayers leasing EVs. Basic-rate taxpayers save less, so personal leasing may be competitive depending on the deal.
Salary sacrifice car vs buying
Buying a car outright means:
- You own the car (can sell it, no mileage limits)
- No tax relief on purchase cost
- You pay for insurance, maintenance, and repairs
- Depreciation risk (EVs depreciate faster than petrol cars currently)
Salary sacrifice means:
- You never own the car (return it at end of lease)
- Tax relief on lease cost (32-42%)
- Insurance and maintenance included
- No depreciation risk (not your car)
If you keep cars for 10+ years, buying may be cheaper long-term. If you change cars every 2-4 years, salary sacrifice often wins for higher-rate taxpayers.
Eligibility
You can use salary sacrifice for a car if:
- Your employer offers a car salary sacrifice scheme
- You are an employee (not self-employed)
- Your salary after sacrifice stays above National Minimum Wage
- You have a UK driving licence
Most schemes require you to be a permanent employee who has passed probation. Some schemes allow company directors to join.
What is included in the lease?
Most salary sacrifice car schemes include:
- Vehicle lease (typically 2-4 years)
- Comprehensive insurance
- Road tax
- Servicing and maintenance
- Breakdown cover
- Tyre replacement (fair wear and tear)
You pay for:
- Fuel or charging costs
- Damage beyond fair wear and tear
- Excess mileage charges (if you exceed annual limit)
- Early termination fees (if you leave your job)
Does salary sacrifice car affect statutory pay?
Yes. Your reduced salary is used to calculate:
- Statutory maternity, paternity, and adoption pay
- Statutory sick pay
- Mortgage affordability (lenders assess gross salary after sacrifice)
If you plan to take maternity leave or apply for a mortgage, consider the reduced salary. Some schemes let you pause or exit early in these circumstances, but fees may apply.
What happens if you leave your job?
If you leave your employer during the lease, you have three options:
- Return the car: Pay an early termination fee (typically the remaining lease cost less any discount the leasing company gets from selling the car)
- Transfer the lease to your new employer: Only possible if your new employer uses the same leasing provider
- Buy out the car: Pay the remaining lease value plus the residual value (expensive)
Early exit fees can be £5,000+ depending on how much of the lease remains. Salary sacrifice cars are a long-term commitment.
Best electric cars for salary sacrifice
Popular EVs for salary sacrifice include:
- Tesla Model 3: £40k-£55k list price, 300-350 mile range
- Volkswagen ID.3: £35k-£45k, 260-340 mile range
- Polestar 2: £45k-£55k, 300-400 mile range
- Hyundai Ioniq 5: £40k-£50k, 240-300 mile range
- Nissan Ariya: £45k-£60k, 250-310 mile range
Check your employer's scheme for the full list of available models. Most schemes offer 20-50 EV models.
How to set up salary sacrifice for a car
Contact your employer's HR or finance team to ask if they offer salary sacrifice cars. If they do:
- Choose a car from the scheme's available models
- Get a quote showing the monthly lease cost and BiK charge
- Sign a salary sacrifice agreement to reduce your salary
- Sign a lease agreement (you are not the lessee, your employer is, but you sign as the driver)
- Receive the car (typically 3-6 months after ordering)
Most schemes are run by third-party providers like Octopus Electric Vehicles, Tusker, or Zenith. Your employer acts as the lessee, and you are the named driver.