Embrace green employee benefits with electric cars through salary sacrifice schemes

Salary sacrifice is nothing new. Once favoured as a means to drive government policy (think the Home Computer Initiative, Cycle to Work scheme, childcare vouchers, etc), the number of employee benefits that can be effectively tax-relieved with salary sacrifice has been significantly reduced.

But salary sacrifice for electric vehicles is very much alive. Thanks to a low benefit in kind (BIK) charge, rolling out an electric car salary sacrifice scheme to employees is becoming increasingly popular and delivers substantial savings.

Breaking down the employee tax benefits of electric car schemes

Take a good look at the numbers: if the cost of the car is £500 per month (which would usually include servicing, tyres, insurance, etc) and if this is taken from gross pay under salary sacrifice, the monthly savings for an employee in tax and NI would be £158 for a basic rate taxpayer or £218 for a higher rate taxpayer, based on updated NIC and income tax thresholds for 2025/26.

Employers save NI too, at 15% from April 2025 (increased from 13.8%), and the starting threshold for employer NIC contributions drops to £5,000. When you add the savings in fuel costs compared with petrol or diesel, the proposition becomes compelling. Some providers of the scheme even include a free home charger.

There is a small amount of tax to pay, as the car is treated as a benefit in kind. The BIK rate will increase by 1% annually until 2028, reaching 5%. 

Top reasons to provide an EV salary sacrifice scheme

Enjoying tax relief is just one of the appeals of electric cars in workplace benefits programmes. Here are the top reasons to offer employees an EV salary sacrifice scheme:

• Tax and NI - we already mentioned tax savings, but it's a key consideration. With the amount sacrificed for EVs being deducted from their salary before income tax and NI contributions are calculated, employees can reap significant savings
• Low benefit-in-kind (BIK) rates - tax-related again, but this time in terms of company car tax or benefit-in-kind tax. Electric car BIK rates are significantly lower, and will increase by 1% annually until 2028, reaching 5%
• Avoiding congestion charges - electric cars and vehicles are exempt from congestion charges, which is a great benefit, especially as governments are cracking down on connections and introducing initiatives such as ULEZ in the UK
• Inclusive subscription service benefits - beyond just getting an electric car, employees have the potential to enjoy an array of benefits as part of a subscription package, such as breakdown cover, insurance, charging and servicing

The benefits to employees are clear. And for employers, this salary sacrifice scheme option is an attractive incentive for existing staff and a pull for attracting new talent to your company.

What else do you need to know about electric cars and salary sacrifice?

What’s the catch with using salary sacrifice for electric cars? Nothing, really. Employees will usually need to commit for three years. As an employer, insurance policies can be put in place to give you protection if your employees leave early or are absent for an extended period. 

Providing electric cars through a salary sacrifice scheme gives HR teams a very economical way of introducing a highly valued employee benefit and retention tool. It also counts toward meeting your sustainability targets and doing your bit to save the planet!

Key 2025/26 changes for EV salary sacrifice schemes

Employer NICs: Increased rates and lowered thresholds affect salary sacrifice benefits

• NIC rate for employers increased from 13.8% to 15%
• The starting threshold for employer NIC contributions decreased from £9,100 to £5,000 per year
• Source: Gov.uk

Benefit in kind (BIK) rates for electric vehicles

• BIK rate increases by 1% annually until it reaches 5% in 2027/28
• Source: Octopus EV

Vehicle Excise Duty (VED) for electric vehicles

• EVs are no longer exempt from VED
• £10 first-year fee, then standard annual rate
• Vehicles over £40,000 now incur a £425 per year 'expensive car supplement' for 5 years
• Source: The Guardian

Employee savings through salary sacrifice

• Savings for employees are still substantial, but slightly reduced due to NIC and tax changes
• Source: The Electric Car Scheme

Ready to start offering electric vehicles to employees right away?

With our flexible benefits platform, you can launch an electric car salary sacrifice scheme with any of the UK’s leading providers. If you’re looking to start offering your people electric vehicles or if you’re looking to implement more sustainable and green employee benefits to your mix, get in touch with our team. We’d love to help.

This article was updated in April 2025 to reflect announcements in the 2025 Spring Statement.

Ciphr does not provide tax, accounting, or employment law advice. This material has been prepared for informational purposes only. It's not intended to provide and should not be relied on for tax, accounting, or employment law advice. You should consult your own tax, accounting, and employment law advisors. Information is accurate at the time of publication. Ciphr assumes no responsibility or liability for any errors or omissions in the content of this site. 

This content was initially published by Phil Curtis on Flexgenius.co.uk, a Ciphr company, and has been copied over to Ciphr.