How Does Salary Sacrifice Work?
Salary sacrifice is one of the most tax-efficient ways for employees to drive a brand-new electric vehicle. Instead of leasing a vehicle personally from your take-home pay, the monthly lease cost is deducted from your gross salary before Income Tax and National Insurance are calculated.
Because the deduction is made before tax, employees typically pay significantly less than they would through a personal lease. The exact savings depend on salary, tax band and the vehicle selected, but many drivers can save hundreds of pounds each month.
The employer leases the vehicle and provides it to the employee as a company benefit. In return, the employee agrees to reduce their salary by the agreed monthly amount for the duration of the contract.
The employee then pays Benefit in Kind (BiK) tax on the electric vehicle. Thanks to the Government's favourable tax treatment for electric vehicles, BiK remains extremely low, making salary sacrifice one of the most cost-effective ways to own or lease a new EV.
Why Electric Vehicles?
Electric vehicles have transformed the salary sacrifice market.
The Government continues to encourage the adoption of zero-emission vehicles through low Benefit in Kind taxation. Combined with reduced running costs and lower maintenance requirements, electric vehicles often provide substantial savings compared to petrol or diesel alternatives.
Additional benefits include:
Lower Benefit in Kind tax
No road tax on many existing EV agreements (depending on registration date and legislation)
Lower servicing costs
Reduced fuel costs through home charging
Access to Clean Air Zones without additional charges
Quieter and smoother driving experience
Reduced environmental impact
Benefits for Employers
Reduce Employer National Insurance Contributions As employee salaries reduce, employers can often reduce their own National Insurance liabilities.
Improve Employee Retention Offering an attractive employee benefit helps retain talented staff and makes your business more competitive when recruiting.
Support Sustainability Goals Electric vehicle salary sacrifice schemes contribute towards ESG targets and carbon reduction strategies.
Cost Neutral Many schemes are designed to be cost-neutral for employers while still providing significant employee benefits.
Demonstrate Employee Wellbeing Providing access to affordable electric vehicles shows investment in employee wellbeing and financial benefits.
Benefits for Employees
Significant Tax Savings As payments are made from gross salary, employees benefit from Income Tax and National Insurance savings.
Brand New Electric Vehicle Drive the latest EV technology with improved range, safety features and manufacturer warranties.
Fixed Monthly Costs Most running costs are included within one simple monthly payment, making budgeting much easier.
No Deposit Required Many salary sacrifice schemes require little or no upfront payment.
Fully Maintained Maintenance packages help eliminate unexpected repair costs throughout the lease.
Hassle-Free Motoring Everything is managed through one agreement, reducing administration and paperwork
Why Choose a Salary Sacrifice Scheme?
It’s a flexible, tax efficient solution that helps reduce carbon footprints, improve employee wellbeing, and support a more modern, inclusive benefits package.
With the rise of electric and low-emission vehicles, salary sacrifice has become an increasingly popular way to drive greener for less.