What tax benefits do EV salary v sacrifice schemes offer?

Benefit-in-Kind? National Insurance? Optional Remuneration Arrangements?

Tax can be complex at the best of times. Add EV salary sacrifice schemes and evolving HMRC rules into the mix, and it’s easy to feel lost in the jargon. If only there were a simple guide to help you cut through the complexity and understand how to make the most of the benefits…

Good news: you’ve just found it. Let's plug into the details.

An EV salary sacrifice scheme is a smart, cost-effective way for employers to offer a cutting-edge benefit while unlocking tax and National Insurance savings.

Here’s how it works: your business leases an electric vehicle, and your employee agrees to give up a portion of their gross salary in exchange for the use of the car. Because the sacrifice is taken before tax, both your company and your employee save on National Insurance Contributions (NICs) and Income Tax.

For your team, it means easy access to a brand-new EV. For your business, it’s a powerful way to:

• Enhance your employee benefits offering
• Support your net zero and ESG commitments
• Reduce your Class 1A NIC bill

And when you partner with us, we make life simple. Our fully managed scheme includes the car, insurance, servicing, breakdown cover, and driver support, all wrapped into one simple package. We can also help with onboarding, education, and compliance, so you can roll out the benefit with confidence.

Maintenance

Servicing, maintenance and repairs to keep your car in top condition.

Breakdown cover

At home or on the road breakdown assistance included.

Insurance

Comprehensive insurance included as standard.

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Let’s take a closer look at how the savings stack up.

What tax benefits do EV salary sacrifice schemes have?

EV salary sacrifice isn’t just better for the planet; it’s also lighter on your company’s and employees’ tax bills. Here’s why:

Because the cost of the EV comes out of employees’ gross salary (before tax), they pay less Income Tax and National Insurance Contributions (NICs). That means they get to drive a top-spec electric vehicle for less take-home pay than if they leased privately.

Employers benefit, too. With employees’ gross salaries reduced, your company’s Employer NIC liability falls, delivering genuine savings across your workforce.

A major reason EV salary sacrifice is so tax-efficient is the incredibly low BiK rates on pure electric vehicles. Right now, electric cars have a BiK rate of just 3%, compared to up to 37% for petrol or diesel vehicles. This rate is expected to stay ultra-low for years to come.

That means your employees can enjoy driving premium EVs like Teslas or Polestars while paying a fraction of the tax they would on traditional company cars.

Because Class 1A NIC is charged on the taxable value of company cars, the super-low Benefit-in-Kind rate for EVs means your business pays far less National Insurance than it would for petrol and diesel cars. That means more savings for your business with less fuss for your finance team!

Navigating HMRC’s rules can be tricky, but it’s important to make sure your EV salary sacrifice scheme delivers the savings your employees want, without any surprises. Here’s what you need to know:

Since 2017, HMRC’s OpRA rules have tightened tax benefits on many salary sacrifice schemes. The good news is that ultra-low emission vehicles – those emitting 75g/km CO₂ or less – are excluded from these restrictions. That means EV salary sacrifice schemes keep their full tax advantages.

When planning your employees’ EV schemes, don’t forget to make sure their post-sacrifice pay doesn’t fall below the National Minimum Wage. You can’t sacrifice what doesn’t exist! This is a key compliance checkpoint, and we help our partners navigate it smoothly.

To keep HMRC happy, your payroll must accurately reflect:

• Adjusted employee salaries
• The Benefit-in-Kind (BiK) value of the vehicle

This means updating payroll systems, submitting P11Ds, and annual returns correctly. But don’t worry – we’ll give you clear, step-by-step advice to make the compliance process easy and stress-free.

Ready to get started? Here’s how to hit the ground running.

Partnering with an experienced provider means expert support every step of the way. We’ll handle the heavy lifting, from vehicle sourcing and employee onboarding to tax compliance and car insurance and maintenance.

But it’s not just about the cars. Helping your employees understand how the scheme works, the savings they’ll enjoy, and the tax benefits involved is key to encouraging uptake and keeping things running smoothly.

An EV salary sacrifice scheme is one of the smartest ways to drive positive change. But like any tax-related benefit, understanding the rules is crucial to unlocking its full potential.

With the right partner by your side, you can deliver meaningful benefits to your team, reduce your employees’ tax bill, and make a real impact on the planet – all while staying fully compliant with HMRC.

Ready to help your employees save?