EV Salary Sacrifice Schemes Explained: How to Save Thousands on an Electric Car

An EV salary sacrifice scheme is a workplace benefit that allows you to lease an electric car by giving up a portion of your gross salary each month.

Rather than taking your full salary and paying for a car from your take-home pay, the monthly lease cost is deducted before Income Tax and National Insurance contributions are calculated. Because this reduces your taxable income, it can mean considerable savings on a new electric car.

If you’ve heard of the Cycle to Work scheme, the principle here is similar. Your employer partners with a salary sacrifice provider, employees choose an eligible vehicle, and monthly payments are taken directly from payroll for an agreed period, typically between two and four years.

Electric vehicles are well suited to salary sacrifice schemes because they have very low Benefit-in-Kind (BiK) tax rates. A traditional company car will come with the traditionally high tax bill, whereas fully electric vehicles are taxed at a much lower rate, giving you more savings.

Plus, a typical EV salary sacrifice package usually includes far more than just the vehicle itself. Depending on the provider, that single monthly payment may also cover:

• Fully comprehensive insurance
• Servicing and maintenance
• Breakdown cover
• Replacement tyres
• Road tax
• Accident management support

This all-inclusive approach helps make budgeting easier, especially if this will be your first time having an EV and you’re unsure of the costs involved.

EV Salary Sacrifice Schemes at a Glance

While the tax side of EV salary sacrifice can sound complicated, the process is actually fairly straightforward. Once your employer offers a scheme, getting an electric car is usually no more difficult than ordering a company car.

Here’s how it works.

Step 1: Your Employer Signs Up to a Scheme

The only way you can take advantage of an EV salary sacrifice scheme is if your employer has signed up to one.

Providers such as Octopus EV, Tusker and loveelectric work with businesses to offer electric vehicle leasing as an employee benefit. Your employer agrees to the scheme terms, and then you’ll be invited to browse the available vehicles.

If your employer doesn’t currently offer an EV salary sacrifice scheme, you can always ask. Many businesses are introducing schemes as a way to improve employee benefits, so you might discover it’s already in the works.

Step 2: You Choose an Electric Vehicle

Once enrolled, you’ll select from a range of eligible electric vehicles.

The exact choice will depend on your employer’s scheme and budget limits, so every EV on the market won’t be on offer. But most providers offer everything from affordable small EVs to premium SUVs and more premium executive cars.

Once you’ve picked a car, you’ll get a personalised quote showing:

• Your monthly salary sacrifice amount
• Estimated tax savings
• Benefit-in-Kind (BiK) costs
• What’s included in the package
• Your expected take-home pay after deductions

Don’t be afraid to shortlist two or three EVs to compare the true monthly cost before committing.

Step 3: Monthly Payments Are Taken From Your Gross Salary

After you’ve chosen a vehicle, the agreed monthly amount is deducted directly from your gross salary through payroll.

Because these deductions are made before Income Tax and National Insurance are calculated, your taxable income is reduced. This is where the financial savings come from.

For example, if £500 is deducted from your gross salary each month, you won’t pay Income Tax or National Insurance on that portion of your earnings.

Step 4: You Pay Benefit-in-Kind (BiK) Tax

Even though salary sacrifice brings down your tax bill, you still have to pay a small amount of company car tax known as Benefit-in-Kind (BiK).

Step 5: Receive Your EV and Start Driving

Once the paperwork is complete and your vehicle is ready, it’s delivered and you can start driving.

Throughout the lease term, you’ll make monthly salary sacrifice payments until the agreement ends. Depending on the provider, you may get your ongoing costs included, such as servicing, maintenance and EV insurance. But you should always know exactly what you’re paying for before signing on the dotted line.

Savings for Basic Rate Taxpayers

If you’re on the basic 20% rate of Income Tax, you’ll still make significant savings. As much as 20-30% compared with funding the same vehicle privately. This is especially true when insurance, servicing and maintenance are all bundled into your monthly payment.

Savings for Higher-Rate Taxpayers

If you’re paying 40% or 45% Income Tax, you’ll see even more savings. Since a higher portion of your pay is lost to tax, you could reduce your monthly cost by 40% or more compared to leasing privately.

These figures are illustrative only and actual savings will depend on your salary, chosen vehicle and scheme provider. To get an accurate estimate, we highly recommend using your scheme provider’s salary sacrifice calculator or requesting a personalised quote through your employer.

Benefit-in-Kind tax is a charge applied when an employee receives a non-cash benefit from their employer, such as a company car.

HMRC treats the use of a company vehicle as a taxable benefit because you’re receiving something of value in addition to your salary. So, employees using a salary sacrifice EV pay a small amount of company car tax each month.

The amount you pay is based on the EVs list price (or the P11D value), the EVs BiK rate, and your Income Tax band.

The good news is that fully electric vehicles currently have the lowest BiK rates available, no matter how premium you go.

Why Are EV BiK Rates So Low?

The UK Government uses company car tax to encourage the adoption of lower-emission vehicles to help hit nationwide sustainability goals.

Because fully electric cars produce zero tailpipe emissions, they qualify for significantly reduced Benefit-in-Kind rates compared to petrol, diesel and most hybrid vehicles.

Although EV Benefit-in-Kind rates are gradually increasing year-on-year, they are considerably lower than those applied to petrol and diesel cars.

By comparison, many petrol and diesel company cars attract BiK rates of 25% to 37%, depending on their CO₂ emissions.

Example: How BiK Tax Works

Imagine you’re a higher-rate taxpayer choosing an electric car with a P11D value of £45,000.

Using a 4% BiK rate, the taxable benefit would be:

£45,000 × 4% = £1,800

As a 40% taxpayer, your annual BiK tax bill would be:

£1,800 × 40% = £720 per year

That’s equivalent to around £60 per month in company car tax.

Using an EV salary scheme, you’d have access to a brand-new EV for significantly less than you’d pay through a private lease or finance agreement.

Is a Home Charger Included?

A common question we get from first-time EV drivers is whether an EV home charger is included as part of the salary sacrifice package.

The answer depends entirely on the provider.

Some schemes offer a home charger as an optional extra, while others partner with charger installers like us to provide discounted installation packages. However, many schemes currently available in the UK don’t include home charging equipment as standard.

If you’re planning to drive an electric vehicle regularly, we can’t recommend installing a home charger highly enough.

You’ll get on-demand access to charging and the cheapest EV energy tariffs during off-peak charging. Not to mention the peace of mind that your brand-new EV is always ready to go after overnight charging.

Thinking about home charging? Explore Pro EV’s range of smart home EV chargers to get ready to make the most of your new electric vehicle from day one.

EV salary sacrifice schemes come with some great benefits, but they’re not the right choice for everyone. We want you to have all the information you need before making a choice, so here are the downsides of the scheme you need to think about.

Early Termination Charges

Most EV salary sacrifice agreements run for between two and four years. If you leave your employer before the lease ends, you might be required to pay early termination charges.

Some schemes include protection for circumstances such as redundancy, long-term sickness or maternity leave, while others don’t.

If you’re planning a career change or think your employment situation could change in the near future, you need to know in advance how it will affect your agreement and have a Plan B in place.

Pension Contributions Could Be Affected

Because salary sacrifice reduces your gross salary, it can affect workplace pension contributions.

In some schemes, pension contributions are calculated using your pre-sacrifice salary, meaning there’s no impact. But in others, contributions are based on your reduced salary, which could lower the amount paid into your pension over time.

If you’re unsure how your employer calculates pension contributions, speak to your HR department or pension provider before joining a scheme.

Maternity, Paternity and Long-Term Sick Leave Considerations

During maternity, paternity or long-term sick leave, your salary might fall below the level required to maintain the agreement. In those scenarios, you’d need to make alternative payment arrangements or return the vehicle.

Many providers do offer lifestyle protection policies that cover situations such as:

• Maternity and paternity leave
• Long-term sickness
• Redundancy
• Loss of driving licence

Even so, it’s important to understand exactly what is and isn’t covered to go in with your eyes open.

Mortgage Affordability Impacts

Because salary sacrifice reduces your gross salary, some mortgage lenders will take it into account when assessing affordability.

This doesn’t automatically mean you’ll be unable to secure a mortgage, but it could affect how much you’re able to borrow.

So, if you’re planning to apply for a mortgage or remortgage in the next few years, it’s sensible to discuss the implications with a mortgage adviser before entering into an agreement.

Many of our clients have secured their EV through a EV salary sacrifice scheme, and they would tell you it’s worth it. It’s one of the most affordable ways to drive a brand-new electric car.

But that doesn’t mean it’s the right option for you. If you’re going to change jobs soon, want to own your new EV outright, or you’re anticipating some big life changes in the coming years, an EV salary sacrifice scheme might tie you into an agreement that doesn’t suit your needs.

Before signing up, it’s worth comparing the costs against personal leasing, PCP finance and outright purchase to make sure you’re choosing the option that best suits your circumstances.

When you’re ready for a new EV, we make charging a breeze. Talk to our team of EV charger installers today, and we’ll help you get your home ready before your salary sacrifice vehicle arrives.