What is a salary sacrifice car scheme?

A salary sacrifice car scheme is an arrangement where an employee gives up part of their gross salary in exchange for a company car — typically a fully electric vehicle. Because the monthly payment is deducted before income tax and National Insurance are calculated, the effective cost is significantly lower than leasing personally. The employer leases the vehicle and the employee pays a small Benefit in Kind tax charge on it.

How much can an employee save through salary sacrifice?

A basic-rate taxpayer saves 20% income tax plus 8% employee NI on the sacrifice amount — a 28% total saving. A higher-rate taxpayer saves 40% tax plus 2% NI — a 42% saving. These savings are partially offset by BiK tax. With the 4% EV BiK rate in 2026/27, net monthly savings are typically hundreds of pounds compared to a personal lease on the same vehicle.

Does salary sacrifice reduce employer National Insurance?

Yes. When an employee reduces their gross salary through salary sacrifice, the employer pays National Insurance on a lower figure. Employer NI is 15% in 2026/27. For a scheme with 20 employees each sacrificing £500 per month, the employer NI saving is approximately £1,800 per month or £21,600 per year.

Why are electric vehicles used for salary sacrifice?

Electric vehicles attract a Benefit in Kind rate of just 4% in 2026/27, far below the 24–37% rates for petrol or diesel cars. Because BiK tax is the main offsetting cost in salary sacrifice, the low EV rate means employees keep far more of their tax and NI savings. Petrol and diesel cars carry such high BiK rates that salary sacrifice savings are largely cancelled out — making EVs the only vehicle type where the arrangement delivers genuine financial benefit.

What is Benefit in Kind tax and how much will an employee pay?

BiK tax applies when an employer provides a company car available for private use. For a fully electric car with a £40,000 P11D value at the 2026/27 BiK rate of 4%, the annual BiK value is £1,600. A basic-rate taxpayer pays £320 per year (£27 per month). A higher-rate taxpayer pays £640 per year (£53 per month). This is far less than the income tax and NI saved through salary sacrifice.

What happens if an employee leaves before the lease ends?

If an employee leaves before the lease ends, the employer typically becomes liable for the remaining payments. VCEA advises on managing this through the scheme policy — including clauses that transfer remaining liability to the departing employee, or early termination insurance to cover this risk.

Can salary sacrifice affect a mortgage application or state benefits?

Yes. Salary sacrifice reduces gross salary, which can affect mortgage affordability assessments and salary-related state benefits including maternity pay and statutory sick pay. VCEA strongly recommends all employees seek independent financial advice before entering a salary sacrifice arrangement, particularly if planning a mortgage application.

Is a salary sacrifice car reported on the P11D?

Yes. Salary sacrifice cars are treated as company cars by HMRC and reported on the employee's P11D each tax year. The employer reports the P11D value, CO2 emissions and fuel type. BiK tax is collected through the employee's PAYE code automatically each month.

What vehicles are available through VCEA's salary sacrifice scheme?

VCEA is independent and not tied to any manufacturer, so employees can choose from the full UK EV range. Popular models include Tesla Model 3 and Y, BMW i4, Volkswagen ID.7, Kia EV3, Audi Q4 e-tron, Hyundai IONIQ 6, Peugeot e-208, Skoda Enyaq and Volvo EX30. Contact VCEA with any specific model and we will confirm availability.

Is there a minimum number of employees needed to set up a scheme?

Requirements vary by finance provider. Some funders consider schemes for businesses with as few as 10 to 15 eligible employees. VCEA assesses your workforce at the outset and identifies the most suitable providers for your organisation's size.

How long does a salary sacrifice lease last?

Agreements typically run for 24, 36 or 48 months. The most common term is 36 months. At the end, the vehicle is returned and the employee can choose a new EV or exit the scheme.

Does VCEA charge employers to set up a salary sacrifice scheme?

There is no direct setup fee to the employer. VCEA is remunerated through a commission arrangement with the finance provider, disclosed in line with FCA requirements. Any scheme administration costs are explained transparently before commitment.

Salary Sacrifice Car Scheme UK | Calculator

Step 1

Your details

Tell us your gross salary and the car scheme quote, and we'll work out the real cost after tax and National Insurance.

Your salary

Annual gross salary (£)

Before any deductions — the figure on your contract or payslip before tax and NI.

Where do you pay income tax?

National Insurance is the same UK-wide; only income tax bands differ in Scotland.

Car scheme details

Annual salary sacrifice / lease cost (£)

The gross amount you give up each year — usually quoted per month by the scheme provider.

P11D value / list price (£)

Used to work out the taxable Benefit in Kind (BIK).

Benefit in Kind (BIK) rate

1–50g/km bands per HMRC's 480: Appendix 2 (2026/27). Petrol and diesel cars are taxed on a CO2-based sliding scale from 18% up to a 37% cap — enter the exact rate for your vehicle as "Custom".

Company car Benefit in Kind is taxed as income (added to your taxable pay) but is not subject to employee National Insurance — only the employer pays Class 1A NI on it. This is why electric vehicles, with a low BIK rate, are the most tax-efficient salary sacrifice option.

Step 2

Your result

Comparing salary sacrifice against funding the same car privately, out of your take-home pay.

Gross cost of the car

£0

per year, sacrificed from salary

Tax + NI saved (net of BIK tax)

£0

per year

Effective net cost of the car

£0

£0 / month

Without the scheme (funding a car privately, from net pay)£0 gross

With salary sacrifice car scheme£0 gross

Take-home pay Income tax Employee NI Extra tax on BIK Car sacrificed

Per year	Without scheme	With scheme	Difference

Employer view: they save Class 1 NI (15% above the £5,000 secondary threshold) on the sacrificed amount, but pay Class 1A NI (15%) on the BIK value. Net employer NI change: £0 per year.

Want an exact quote on a real vehicle?

This calculator is illustrative. VCEA's consultants can give you a fixed monthly price and confirm the exact BIK rate for the car you have in mind.

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Electric Car Salary Sacrifice Calculator

Your details

Your salary

Car scheme details

Your result

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