Electric vehicles (EVs) are becoming a larger part of the UK's fleet mix, and for many businesses, salary sacrifice schemes are among the most cost-effective ways to make the switch.
What is EV salary sacrifice?
EV salary sacrifice is a scheme that allows employees to give up part of their gross salary in exchange for a fully maintained electric car. The deduction is taken before tax and national insurance; therefore, employees pay less income tax and national insurance.
As a result, employees usually have access to an electric vehicle, including insurance, servicing and maintenance, road tax, and breakdown cover.
How does EV salary sacrifice work
Employer sets up a scheme - You partner with a provider who supplies EVs and manages the scheme.
Employee chooses a vehicle - The employee selects an electric car within an agreed budget.
Salary is reduced - A fixed monthly amount is deducted from the employee's gross salary.
Tax savings are applied - Because salary is reduced before tax, Income tax and National Insurance are lower.
Employee pays Benefit-in-Kind (BIK) - EVs are still taxed as a company car, but at a much lower rate than petrol or diesel vehicles.
What is the BIK rate for electric cars?
The benefit-in-kind (BIK) for EVs in the UK remains significantly lower than that for traditional vehicles.
For the 2023/24 and 2024/25 tax years, the BIK rate for fully electric vehicles is set at just 2%. From 2025/26, the rate will increase gradually by 1 percentage point each year, reaching 3% in 2025/26, 4% in 2026/27, and 5% in 2027/28. In comparison, petrol and diesel vehicles are taxed at much higher rates. This is what makes EV salary sacrifice so attractive as it combines tax efficiency, lower running costs and predictable monthly pricing.
What are the benefits for employers?
Lower national insurance contributions because salaries are reduced; therefore, employers pay less NI per employee.
No upfront vehicle costs. The scheme is typically funded through salary sacrifice; there is no large capital outlay and no risk of vehicle ownership.
Supports sustainability goals by reducing fleet emissions and advancing ESG targets.
Attractive employee benefits, such as EV schemes, are increasingly seen as a valuable perk, helping with recruitment and retention.
What are the benefits for employees?
1. Tax savings
Employees pay less:
Income tax.
National Insurance.
2. Lower running costs
EVs are generally cheaper to run than petrol or diesel vehicles, especially when charging at home.
3. All-inclusive package
Most schemes include:
Insurance.
Maintenance.
Servicing.
4. Access to newer vehicles
Employees can drive a new EV without needing:
A large deposit.
Personal finance.
Are there any drawbacks?
It's not one-size-fits-all. A few things to consider, such as salary reduction. Take-home pay is lower due to the salary sacrifice. Early termination fees: if an employee leaves early, charges may apply (depending on the scheme). Impact on benefits, salary sacrifice can affect pension contributions and mortgage affordability (in some cases). Eligibility: Not all employees may qualify, especially if doing so would put them below the minimum wage.
Employers can help address these issues in several ways. For example, they can offer to adjust pension contributions to offset the impact of reduced salaries, clearly communicate the scheme's eligibility criteria upfront, and provide guidance on how salary sacrifice might affect other benefits, such as pensions or mortgage applications. Choosing a scheme with built-in early termination protection can also help reduce risks for employees and employers alike. Providing clear information and support ensures that employees can make informed decisions about whether EV salary sacrifice is right for them.
Is EV salary sacrifice worth it for your business?
For many UK businesses, the answer is yes, but it depends on your workforce and fleet strategy.
It's typically a good fit if:
You want to offer a competitive employee benefit.
You're looking to reduce emissions.
You want to avoid upfront vehicle costs.
It may be less suitable if:
Your workforce has limited access to charging.
Employees prefer vehicle ownership over leasing-style models.
EV salary sacrifice vs company cars
Feature | EV Salary Sacrifice | Traditional Company Car |
|---|---|---|
Cost structure | Employee-funded | Employer-funded |
Tax efficiency | High (low BIK) | Lower (higher BIK for ICE vehicles) |
Flexibility | Employee choice | Employer controlled |
Upfront cost | None | Often required |
How EV salary sacrifice fits into your fleet strategy
EV salary sacrifice works best as part of a broader fleet approach, alongside:
Fuel cards for remaining petrol/diesel vehicles.
Clear fuel and usage policies.
Ongoing cost and efficiency monitoring.
It's not a full replacement, but it can play a key role in:
Transitioning to EVs gradually.
Reducing overall fleet costs over time.
EV salary sacrifice is one of the most practical ways for UK businesses to introduce electric vehicles without high upfront costs. It offers clear benefits, but like any scheme, it works best when it's aligned with your wider fleet strategy.
EV salary sacrifise FAQ's
How much can employees save with EV salary sacrifice?
Savings vary depending on salary, tax band, and the vehicle chosen. In many cases, employees can save 20-50% compared to personal leasing, mainly due to lower tax and National Insurance contributions, plus the low BIK rate on electric cars.
What happens if an employee leaves the company early?
Most schemes include early termination protection, but terms vary by provider.
In some cases:
The employer may pass costs to the employee.
Insurance policies may cover specific situations (e.g. redundancy or illness).
It's important to check the terms before setting up a scheme.
Does EV salary sacrifice affect pensions?
Yes, it can. Because salary is reduced, pension contributions based on salary may also decrease. This depends on how your pension scheme is structured. Some employers adjust contributions to offset this, but not all do.
Can employees choose any electric car?
Usually, employees can choose from a pre-approved list of EVs provided by the scheme partner.
This typically includes:
Popular models across different price ranges.
Vehicles that meet emissions and tax criteria.
Budgets are often set based on salary levels.
Is EV salary sacrifice better than a personal lease?
It can be, particularly for higher-rate taxpayers. Key advantages include:
Lower tax and NI.
Bundled costs (insurance, maintenance, etc.).
No upfront deposit.
However, personal leasing may offer more flexibility in some cases.
Do employees need a home charger?
Not necessarily, but it helps. Employees can still use public charging networks and workplace charging (if available). That said, home charging is usually the most cost-effective option.
Is EV salary sacrifice suitable for small businesses?
Yes. Many providers offer schemes designed for SMEs and growing fleets. There's typically minimal upfront cost, making it accessible even for smaller businesses. For SMEs, most providers offer streamlined sign-up processes and do not require a large number of employees to get started. The typical minimum number of employees required to launch a scheme is usually very low, often just one or two people. Some schemes may require a minimum of two participants, while others have no minimum. Onboarding is usually simple, with providers managing most of the administration. This means SMEs can benefit from EV salary sacrifice without the burden of complex setup or large fleets.
Are there any risks for employers?
The main considerations are:
Managing employee eligibility.
Understanding early termination terms.
Communicating the impact on salary and benefits.
Working with a reputable provider usually reduces these risks.
Can EV salary sacrifice be combined with other fleet solutions?
Yes. Many businesses run EV salary sacrifice alongside:
Fuel cards for petrol and diesel vehicles.
Company car schemes.
Cash allowance options.
This allows for a flexible, mixed fleet approach.
Will EV BIK rates increase in the future?
Yes, but they are expected to remain significantly lower than petrol and diesel rates for the foreseeable future.
This is part of the UK government's push to encourage EV adoption.
