How does Benefit in Kind (BiK) affect electric cars?

Yes, you pay Benefit-in-Kind tax on an electric car through salary sacrifice. The good news is how little you pay for electric cars compared with other fuel types. 

For the 2026/27 tax year the BiK rate on a fully electric car is 4%, against up to 37% for a petrol or diesel car, according to HMRC's appropriate percentages table. That gap is the reason salary sacrifice works so well for electric cars. Here’s how BiK is worked out, what you'd be likely to pay each month, and where the rates go next.

• Benefit-in-Kind (BiK) is the tax you pay on a non-cash perk from your employer. A car you can use privately is a common one.
• For the 2026/27 tax year, the BiK rate is: 
  • 4% for a fully electric car
  • 4% to 16% for a hybrid depending on its electric range 
  • And 17% to 37% for a petrol or diesel car 
• The electric car rate rises to 5% in the 2027/28 tax year, 7% in 2028/29 and 9% in 2029/30. Even at 9% it stays well below a typical petrol rate.
• BiK is worked out as: P11D value × BiK rate × your Income Tax rate. On a Jaecoo E5 with a P11D value of £27,450, a 40% taxpayer would pay about £37 a month in the 2026/27 tax year.
• Salary sacrifice rarely gives you a meaningful saving on a petrol or diesel car, and the savings you can make on a hybrid weaken from April 2028 onwards.

Benefit-in-Kind tax is what HMRC charges on perks your employer gives you on top of your salary. A company car is the most common example, but private medical cover and gym membership count too.

It's often called company car tax, which is why it catches people out when it turns up alongside salary sacrifice. The two are separate things landing on the same payslip.

You don't pay BiK as a separate bill. It's collected through PAYE, either by adjusting your tax code or by being processed through payroll, so it comes out before your pay reaches your bank account.

Because HMRC treats the car as a benefit from your employer, however you got it. If you can drive it privately, it's taxable.

That surprises people, so it's worth walking through the mechanics.

Salary sacrifice is an arrangement where you give up part of your pre-tax salary in exchange for a non-cash benefit. In this case, an electric car.

Your employer reduces your salary by an agreed amount and provides you with the car instead. Because that reduction happens before Income Tax and National Insurance are calculated, your taxable pay falls, and so does your tax bill. You might have done the same thing already with a pension or a cycle to work scheme.

BiK is the bit that comes back the other way. You save Income Tax and National Insurance on the amount you sacrifice, then pay a small amount of BiK on the car. With an electric car, the savings are far bigger than the BiK you’ll pay.

Here's the part almost nobody explains, and it's the reason you can make such big savings on an EV through salary sacrifice.

Most benefits taken through salary sacrifice are taxed under Optional Remuneration Arrangement rules, which value the benefit whichever is higher - the salary given up or the normal BiK calculation. That wipes out most of the advantage.

Cars emitting no more than 75g/km of CO2 (including EVs) are separate from these rules. HMRC says to use the normal Benefit-in-Kind rules instead, in its salary sacrifice guidance. Every fully electric car qualifies, so the BiK charge is based on 4% of the car's value rather than on the salary you've given up.

Take a petrol or diesel car through salary sacrifice and that carve-out doesn't apply, which changes the maths completely. There's a section on this further down.

Reducing your pre-tax pay has knock-on effects, and this is something people can miss.

A lower salary can mean lower pension contributions, lower statutory maternity or paternity pay, and a smaller figure for a lender to work with on a mortgage application. Some lenders add the sacrifice back, many don't. Salary sacrifice can also affect whether you’re entitled to earnings-related and contribution-based benefits, as HMRC sets out in their guidance on employers running schemes.

There's also a floor. Sacrifice can't take your pay below the National Minimum Wage or National Living Wage, currently £12.71 an hour for anyone aged 21 and over, under the GOV.UK minimum wage rates. Your employer has to check this before you join a scheme.

None of that makes salary sacrifice a bad idea. You should just know the facts before you make a decision. 

Three numbers, multiplied together:

P11D value × BiK rate × your Income Tax rate = your annual BiK

The P11D value is the car's list price including VAT and delivery charges. It doesn't include the first registration fee or road tax. HMRC uses the list price even if your employer got a discount.

The BiK rate comes from the car's CO2 emissions. Zero emissions puts you in the lowest band.

Your Income Tax rate is whatever tax band you're in, 20%, 40% or 45%.

Take the Jaecoo E5, a compact electric SUV, in entry Pure trim. Its P11D value is £27,450, according to the EV Database listing. At the 4% electric rate for the 2026/27 tax year, the taxable value is £27,450 × 4%, which is £1,098 a year.

Now the useful part. The E5 has a petrol twin, the Jaecoo 5, which is the same car with an engine instead of a battery. It emits 159g/km of CO2, which puts it in the top 37% BiK band, and the matching Pure trim has a P11D value of £23,090 according to Fleet News.

That gives a taxable value of £8,543 a year. A 40% taxpayer would pay £285 a month.

The electric one is worth £4,360 more on paper and still costs £248 a month less in tax. 

These are examples for the 2026/27 tax year, and your own figures will differ depending on the car, the spec, your salary and your tax band.

Rates for the 2026/27 tax year, from the GOV.UK ready reckoner (checked August 2026). Monthly figures hold the P11D value at £27,450, as in the example above, for a 40% taxpayer.

Diesel cars that don't meet the Real Driving Emissions 2 standard get another 4 percentage points added on top, up to the 37% cap, under the same HMRC table.

Two things stand out. A hybrid is only competitive with an electric car if it has a genuinely long electric range, and very few do. And the top petrol and diesel bands aren't a rare edge case. Plenty of ordinary family cars sit above 120g/km.

The electric rate goes up, but slowly, and it was announced well in advance so you can plan around it.

Rates for the 2028/29 and 2029/30 tax years were announced at Autumn Budget 2024. Confirm against GOV.UK before relying on them, as the published ready reckoner currently runs to the 2026/27 tax year.

For an electric car, that's a gentle climb. On the Jaecoo E5 example, a 40% taxpayer goes from about £37 a month in the 2026/27 tax year to £46 in 2027/28, £64 in 2028/29 and £82 in 2029/30. Worth knowing, but not the kind of jump that changes the decision. The petrol Jaecoo 5 starts at £285 a month and climbs to about £300 as its band moves to 39%.

The hybrid picture changes far more sharply, and the next section covers what that means.

Rates apply by tax year, and they're set for the car you're driving in that year. Since HMRC has published the schedule out to the 2029/30 tax year, you can work out roughly what a three or four year lease will cost you in BiK before you sign anything. That's more certainty than most household costs offer.

For petrol and diesel cars, usually not, and it's worth knowing why before you go looking.

Those cars fall under the Optional Remuneration Arrangement rules we mentioned earlier. The taxable value becomes the higher of the salary you've given up or the standard BiK calculation, so the Income Tax and National Insurance saving that makes salary sacrifice worth doing is largely cancelled out. Put a BiK rate of 17% to 37% on top and there's usually very little left. That's why most schemes, including ours, only offer electric cars.

Hybrids sit somewhere in between, and the picture shifts over the next few years.

Any car emitting 75g/km or less keeps the lower BiK rate, so a plug-in hybrid is still taxed under the normal BiK rules. The difficulty is the rate rather than the mechanism. A hybrid with a short electric range already pays 16% in the 2026/27 tax year, four times the electric rate. From April 2028 the electric range bands go, and cars emitting 1 to 50g/km move to 18%, then 19% in the 2029/30 tax year.

On our £27,450 example, that's the difference between roughly £64 a month for an electric car in the 2028/29 tax year and roughly £165 for a hybrid at 18%, for a 40% taxpayer.

A hybrid taken on a four year lease starting now would spend its first two years on the current banded rates and its last two on the higher flat rate. Whether that still stacks up depends on the car, your tax band and the length of the lease, so it's worth running the numbers across the whole term rather than the first year alone.

Employers don't pay Income Tax on a benefit. They pay Class 1A National Insurance on it, currently 15% under the GOV.UK contribution rates.

Class 1A National Insurance is different from the Class 1 National Insurance employers pay on their employees’ salaries - which is what you’re probably more familiar with. Here’s how:

• Class 1 National Insurance is what the business pays on your employees' cash earnings, aka their salary. When salary sacrifice reduces their gross pay, your Class 1 liability goes down. These savings are real and immediate.
• Class 1A National Insurance the tax the business pays on ‘benefits in kind’, including the company car itself. When you provide an electric car as a benefit, HMRC treats it as a taxable benefit, and you pay Class 1A on it.

The business saves employer National Insurance on the salary that the employee gives up. For most schemes, the saving on the sacrificed salary is larger than the Class 1A charge on the car, so the scheme can be National Insurance positive overall. We've broken down the employer NI savings separately.

On reporting, company car benefits are declared on forms P11D and P11D(b) after the tax year ends, or payrolled in real time. HMRC is making payrolling mandatory for company car benefits from 6 April 2027 as the first phase of a phased rollout announced in June 2026, so a P11D is still needed for the 2026/27 tax year.

For anything specific to your own scheme, speak to your accountant and check the HMRC guidance.

If your employer offers EV salary sacrifice with us, you can login to choose an electric car to suit your lifestyle. Your employer will need to approve your order, but there’s no up front cost and you’ll only start paying once the car is delivered. The cost comes out of your pre-tax salary each month. Benefit in Kind is a small deduction on top each month, not a surprise bill later.

The monthly figure covers the car, servicing, maintenance, tyres and breakdown cover, with insurance included as standard on most schemes, though some employers opt out. You can choose a discounted home charger or charging credit too. That's one payment rather than five different things to sort out.

What you end up paying depends on your salary, your tax band, the car you pick and how long you take it for.

The question drivers most often want answered before signing is what happens if life changes. There's cover for leavers and life events.

Employers set their own eligibility rules, so check with yours before you get attached to a particular car. You can see what employees get for the full picture.

Yes. HMRC treats a salary sacrifice car as a company car available for private use, so BiK applies. For a fully electric car the rate is 4% in the 2026/27 tax year, which usually amounts to a small monthly deduction. The Income Tax and National Insurance you save on the sacrificed salary is typically much larger.

Multiply the car's P11D value by 4% for the 2026/27 tax year, then by your Income Tax rate. On a Jaecoo E5 with a P11D value of £27,450, that's about £18 a month for a 20% taxpayer and £37 a month for a 40% taxpayer. Your own figure depends on the car's list price and your tax band.

Neither exactly. BiK is a tax charge, not a deduction from the car's cost. It's collected through PAYE, either by reducing your tax code allowance or through payroll, so it reduces your take-home pay. Your payslip should show it separately from the salary you've sacrificed.

Yes, and it's calculated the same way, using the car's original P11D list price rather than what it's worth now. Because that list price is fixed at when the car was new, a used electric car often produces a similar BiK charge to a new one of the same model.

Your BiK charge follows the rate for each tax year, so it rises when the published rate rises. HMRC has set electric car rates through to the 2029/30 tax year, at 5%, 7% and 9%, so you can work out the increases in advance rather than being caught out by them.