Electric Car Salary Sacrifice: The Complete Employer Guide for 2025-26

Electric vehicle (EV) salary sacrifice schemes have become one of the most popular employee benefits in the UK. The combination of ultra-low Benefit in Kind (BIK) rates, significant employee tax savings, and employer NI savings makes them a win-win for both parties.

Why EV salary sacrifice is so popular

The government has set BIK rates for zero-emission vehicles at extremely low levels to encourage EV adoption:

Tax year	BIK rate (zero emission)
2024-25	2%
2025-26	3%
2026-27	4%
2027-28	5%

Even at 3% for 2025-26, the BIK charge on a £40,000 EV is just £1,200 — meaning a higher-rate taxpayer pays only £480 per year in additional tax for a brand new electric car. Compare this to the running costs of buying or leasing privately, and the savings are substantial.

How it works

1. The employer leases the EV from a scheme provider (e.g., Octopus Electric Vehicles, Tusker, LeasePlan)
2. The employee sacrifices gross salary to cover the lease cost, including insurance, maintenance, and breakdown cover
3. The employee pays BIK tax on the car’s list price × the BIK rate — which is very low for EVs
4. The employer saves NI on the sacrificed salary amount

Employee savings example

An employee earning £45,000 leasing a £40,000 EV with a monthly gross sacrifice of £500:

• Annual sacrifice: £6,000
• Income tax saved (40%): £2,400
• Employee NI saved (8%): £480
• BIK tax payable (40% × £40,000 × 3%): £480
• Net annual cost: £6,000 - £2,400 - £480 + £480 = £3,600

Compared to a personal lease of the same car (typically £550-650/month including insurance and maintenance), the employee saves approximately £3,000-4,200 per year.

Employer benefits

NI savings

With the 2025-26 employer NI rate at 15%, every £1 of salary sacrificed saves 15p in employer NI. For an employee sacrificing £6,000 per year for an EV:

• Employer NI saving per employee: £6,000 × 15% = £900 per year

For a business where 20 employees take up an EV scheme, that’s £18,000 per year in employer NI savings — enough to cover the administration costs several times over.

Recruitment and retention

EV schemes are increasingly expected by candidates, particularly in competitive sectors. They’re a visible, tangible benefit that employees genuinely value — unlike some benefits that go unused.

ESG and sustainability

EV schemes directly reduce your fleet’s carbon emissions. If your business reports on environmental metrics or has net-zero commitments, EV salary sacrifice is one of the most practical steps you can take.

Setting up an EV scheme

1. Choose a provider

The main UK EV salary sacrifice providers include:

• Octopus Electric Vehicles
• Tusker
• LeasePlan
• Fleet Evolution
• Zenith

Providers typically handle the entire process including salary sacrifice documentation, HMRC compliance, and vehicle ordering.

2. Set eligibility criteria

Common criteria include:

• Minimum length of service (typically 6-12 months)
• Minimum remaining salary after sacrifice above NMW
• Maximum sacrifice as a percentage of salary (often 30-40%)
• Permanent employees only (excludes fixed-term contracts)

3. Handle the payroll

The salary sacrifice needs to be reflected in your payroll system:

• Reduce gross pay by the sacrifice amount
• Report the BIK value via P11D at year-end, or payroll the benefit in real time (if payrolling, you still need to file a P11D(b) to declare Class 1A NI on the BIK)
• Ensure NMW compliance is maintained

4. Manage early termination risk

If an employee leaves before the lease ends, someone needs to cover the remaining payments. Options include:

• Employee takes over the lease personally
• Employer absorbs the remaining cost (higher risk)
• Early termination fees built into the scheme design
• Insurance products that cover early termination

Key compliance points

• NMW check — the sacrifice must not take the employee below National Minimum Wage. See our guide to NMW and salary sacrifice
• BIK reporting — the car must be reported as a benefit in kind via payroll or P11D
• Salary sacrifice documentation — a formal variation to the employment contract is required
• OpRA rules — the Optional Remuneration Arrangements rules apply, but EVs with low BIK rates still provide excellent savings

Calculate your savings

Use our Employer NI Calculator to model EV salary sacrifice savings across your workforce. You can select the EV Car Scheme benefit type, enter sacrifice amounts, and see the employer NI impact alongside other benefit types.

For individual employee savings, try our Employee Savings Calculator — select EV Car Scheme to see the tax, NI, and net pay impact.

Calculate EV scheme savings →

Frequently asked questions

How does EV salary sacrifice work?

The employer leases an electric vehicle from a scheme provider. The employee gives up (sacrifices) a portion of their gross salary to cover the lease cost, including insurance, maintenance, and breakdown cover. The employee pays a small Benefit in Kind (BIK) tax on the car’s list price — just 3% for zero-emission vehicles in 2025-26 — while saving income tax and National Insurance on the sacrificed amount.

How much can an employer save on NI with EV salary sacrifice?

With the 2025-26 employer NI rate at 15%, every £1 of salary sacrificed saves the employer 15p in National Insurance. For an employee sacrificing £6,000 per year for an EV, the employer saves £900 per year. Across 20 employees, that’s £18,000 in annual employer NI savings.

What happens if an employee leaves before the lease ends?

This depends on the scheme design. Options include the employee taking over the lease personally, the employer absorbing remaining costs, early termination fees built into the scheme, or insurance products that cover early termination. Most scheme providers offer early termination protection as part of their package.

Does EV salary sacrifice affect pension contributions?

If pension contributions are calculated on pre-sacrifice salary, there is no impact. However, if contributions are based on post-sacrifice earnings, the reduced gross salary will lower pension contributions. Employers should check their pension scheme rules and consider using a “reference salary” for pension calculations to avoid disadvantaging employees.

Can part-time employees use EV salary sacrifice?

Yes, but the NMW compliance check is particularly important for part-time employees since their lower gross pay means less headroom for sacrifice. The combined sacrifice amount must not take the employee’s effective hourly pay below the National Minimum Wage. See our guide to NMW and salary sacrifice for details.