UK Salary Sacrifice Vs Australian Salary Packaging: What Are The Main Differences?
Source: Tesla Media Gallery
Salary sacrifice in the UK has transformed how employees access workplace benefits, especially electric cars. Instead of paying for big-ticket items from your take-home pay, salary sacrifice lets you use your pre-tax salary, reducing both Income Tax and National Insurance along the way.
With Benefit-in-Kind (BiK) set at just 3% for electric vehicles, rising modestly to 4% from April 2026, electric car salary sacrifice has become one of the most valuable employee benefits available. It’s why more employers (and more drivers) are turning to The Electric Car Scheme to make the switch.
Salary sacrifice is not to be confused with salary packaging, a term used in Australia. In the UK, the approach is different (and simpler). For example, in the UK, there’s no Fringe Benefits tax, there are fewer risks, and more focus on high-value benefits like pensions, childcare, and EVs.
In this guide, we cover:
What salary sacrifice really means in the UK
Why electric cars deliver the biggest savings
How The Electric Car Scheme helps you save 20–50%
How UK salary sacrifice compares to Australian salary packaging
What to consider before joining a scheme in 2026
Looking for a smarter way to go electric? You’re in the right place.
What Is Salary Sacrifice In The UK?
Salary sacrifice is an agreement between you and your employer. You agree to give up a portion of your gross salary in exchange for a non-cash benefit. Because your salary is reduced before tax, you pay less Income Tax and National Insurance.
In the UK, salary sacrifice is most commonly used for:
Childcare support
Cycle to Work schemes
Electric car salary sacrifice schemes
Unlike Australia, the UK does not apply Fringe Benefits Tax. That’s a key reason UK salary sacrifice schemes, particularly for EVs, deliver such strong value.
How Does Salary Sacrifice Work in the UK in 2026?
Here’s how it works in practice:
The cost is deducted from your gross salary
Your taxable income goes down
You keep more of what you earn
Source: Shutterstock
With electric cars, this means your lease, insurance, maintenance, and even charging can be bundled into one simple monthly deduction!
Why Is Electric Car Salary Sacrifice The Most Popular UK Scheme?
Electric cars stand out because of the Benefit-in-Kind Tax, otherwise known as BiK. This is a tax levied on company benefits given to an employee in addition to their salary.
In 2026:
Electric vehicles are taxed at 3% BiK
From April 2026, this increases slightly to 4%
Petrol and diesel cars can be taxed at up to 37%
That difference is huge.
With The Electric Car Scheme, you could save 20–50% compared to a personal lease, all while driving a brand-new or used EV with insurance and servicing included.
The Electric Car Scheme: The UK’s Leading Salary Sacrifice Programme
The Electric Car Scheme makes electric car salary sacrifice simple and rewarding, for both you and your employer.
How Does The Electric Car Scheme Work?
Your journey is straightforward:
Get a personalised quote
Order your car through your employer
Receive your EV, fully insured and maintained
There’s no upfront cost, no hidden fees, and no complicated paperwork.
What Makes The Electric Car Scheme Different?
Complete Employer Protection from day one
New and used electric cars
Insurance, servicing, tyres, and breakdown included
Access to The Charge Scheme: salary sacrifice your home, and public charging
Zero net cost for employers
Real Savings Example: £50,000 Salary (40% Taxpayer)
Compared to a personal lease, electric car salary sacrifice can save thousands over the term, thanks to:
Income Tax savings
National Insurance savings
Low BiK rates.
That’s why EV salary sacrifice is often cheaper than buying outright. The table below shows how much someone earning £50,000 can save on an MGS6.
| Savings breakdown | MG S6 SE Long Range 77kWh |
|---|---|
| Average monthly salary sacrifice (inc VAT) | £615 |
| Employee income savings | -£123 |
| Employee national insurance savings | -£49 |
| Average benefit-in-kind tax over term | £33 |
| Net cost/You pay | £476 |
Without salary sacrifice, this employee would spend £615 per month on the cost of their lease, whereas with salary sacrifice, they’d save £123 on income tax contributions and £49 on National Insurance, bringing the overall cost down to £476!
Key Differences Between Salary Packaging (Australia) and Salary Sacrifice (UK)
Salary packaging is the Australian equivalent of UK salary sacrifice, but the systems aren’t the same.
| Feature | UK Salary Sacrifice | Australian Salary Packaging |
|---|---|---|
| Fringe Benefits Tax | ❌ No | ✅ Yes |
| Focus | High-value benefits | Broad benefit mix |
| EV Taxation | 3% BiK (2026) | FBT applies |
| Complexity | Simple | More complex |
Australia’s system allows broader benefits but introduces FBT, which can reduce overall value. The UK approach is more focused and far more EV-friendly.
Tax Benefits Of UK Salary Sacrifice In 2026
Income Tax Savings
Reducing your gross salary lowers the tax you pay, simple as that.
Source: Shutterstock
National Insurance Savings
You and your employer both save NI, increasing the overall value of the scheme.
Benefit-in-Kind Explained
EVs: 3% BiK in 2026
Rising to 4% from April 2026
Petrol/diesel: up to 37%
Low BiK is the single biggest reason EV salary sacrifice works so well.
Types of UK Salary Sacrifice Schemes
Salary sacrifice schemes in the UK allow you to exchange part of your gross salary for benefits that are more tax-efficient or easier to manage. While several options are available, not all deliver the same level of value.
Pensions
Salary sacrifice pension contributions remain one of the most tax-efficient ways to save for retirement. Because contributions are taken before tax and National Insurance, they reduce your taxable income and can significantly boost long-term savings.
That said, pensions are a long-term commitment, which is why many employees choose to balance pension sacrifice with benefits they can enjoy right now.
Childcare & Cycle to Work
Childcare salary sacrifice schemes can help eligible parents manage ongoing childcare costs by spreading payments and improving affordability.
Cycle to Work schemes allow you to lease a bike and equipment through your salary, lowering upfront costs and supporting greener commuting. These schemes are popular and practical, but the overall savings are usually smaller than higher-value benefits.
Electric Car Salary Sacrifice (Best Value)
Electric car salary sacrifice delivers the strongest financial impact because it combines everyday usability with great tax efficiencies.
Things to Consider Before Salary Sacrifice
Salary sacrifice can be a smart financial move, but it’s important to understand how it fits into your wider finances before signing up.
Impact on Pensionable Salary
Because salary sacrifice reduces your contractual salary, it can affect how pension contributions are calculated. In some workplaces, employer contributions are based on your post-sacrifice salary, which may slightly reduce long-term pension growth.
That said, many employers protect pension contributions by calculating them on your pre-sacrifice salary, and the immediate tax savings from electric car salary sacrifice often outweigh the marginal pension impact for many employees.
Mortgage Affordability Checks
Some mortgage lenders assess affordability using your contractual salary rather than your take-home pay. A lower salary on paper could, in certain cases, affect borrowing limits.
However, many lenders now recognise salary sacrifice arrangements, particularly for electric cars, and take your net income into account. It’s still worth checking with your lender or broker if you’re planning a major application.
Salary-Linked Benefits
Benefits such as life cover, redundancy pay, or income protection can sometimes be linked to your salary. If these are based on post-sacrifice pay, the value could be slightly reduced. This is where scheme design really matters. Providers like The Electric Car Scheme work with employers to ensure benefits remain protected wherever possible.
How The Electric Car Scheme Reduces Risk
Traditional salary sacrifice schemes can feel rigid, but The Electric Car Scheme is built to remove uncertainty. With Complete Employer Protection, flexible arrangements, and clear terms from day one, both employees and employers are protected if circumstances change.
Why Should Employers Offer Salary Sacrifice?
Salary sacrifice schemes aren’t just good for employees, they’re a powerful tool for employers too. When implemented well, they deliver financial, cultural, and environmental benefits with minimal effort.
Financial Benefits for Employers
By offering salary sacrifice, employers save on National Insurance contributions because the sacrificed portion of salary is no longer subject to employer NI. With electric car schemes, these savings can be significant and ongoing.
Source: Shutterstock
Recruitment and Retention
Electric car salary sacrifice is a highly valued benefit that helps employers stand out in a competitive job market. It supports retention, improves employee satisfaction, and demonstrates a commitment to modern, flexible benefits.
ESG and Net-Zero Progress
Supporting employees to switch to electric vehicles helps reduce fleet emissions and supports wider sustainability goals. For businesses working towards ESG targets or net-zero commitments, EV salary sacrifice delivers measurable impact.
Simple, Zero-Cost Implementation
With The Electric Car Scheme, employers can set up an EV salary sacrifice scheme at zero net cost, with no upfront investment. The process is simple, fully supported, and backed by Complete Employer Protection, removing the traditional risks associated with salary sacrifice.
Frequently Asked Questions
Source: Shutterstock
What’s The Difference Between Salary Sacrifice And Salary Packaging?
Salary packaging is the term used in Australia and often involves Fringe Benefits Tax, which can add cost and complexity. In the UK, salary sacrifice is simpler, has no Fringe Benefits Tax, and focuses on high-value benefits like pensions and electric cars.
How Much Can I Save With Electric Car Salary Sacrifice In 2026?
Most employees save between 20–50% compared to personal leasing by using pre-tax salary and benefiting from reduced Income Tax and National Insurance. Low Benefit-in-Kind rates for electric cars make these savings particularly strong in 2026.
Does Salary Sacrifice Affect My Pension?
Salary sacrifice can reduce your contractual salary, which may affect pension calculations in some workplaces. Many employers protect pension contributions, and for many employees, the immediate savings still outweigh the long-term impact.
Can Employers Afford To Offer Salary Sacrifice Schemes?
Yes, electric car salary sacrifice schemes can be run at zero net cost to employers. Employers also benefit from reduced National Insurance contributions on the sacrificed salary.
What Happens If I Leave My Job During A Salary Sacrifice Agreement?
Leaving a role mid-agreement can be a concern with traditional schemes. The Electric Car Scheme includes Complete Employer Protection, helping protect both employers and employees if circumstances change.
Is Electric Car Salary Sacrifice Better Than Pension Contributions?
They serve different purposes, with pensions focused on long-term retirement savings and EV salary sacrifice delivering immediate monthly savings. Many employees choose to use both to balance future planning with day-to-day affordability.
Why Is A 3% Benefit-In-Kind Rate So Important?
Benefit-in-Kind determines how much tax you pay on a company car, and electric vehicles are taxed far more favourably than petrol or diesel alternatives. At 3% in 2026, rising to 4% from April, EV salary sacrifice remains one of the most tax-efficient benefits available.
Can I Salary Sacrifice Electric Vehicle Charging Costs Too?
Yes, charging costs can also be included through The Charge Scheme. This allows you to save Income Tax and National Insurance on home and public charging, further reducing the cost of going electric.
Is Salary Sacrifice Cheaper Than Buying A Car Outright?
In many cases, yes - especially once tax savings, insurance, maintenance, and servicing are taken into account. Salary sacrifice also removes high upfront costs and provides predictable monthly payments.
Why Choose The Electric Car Scheme?
The Electric Car Scheme offers Complete Employer Protection from day one, flexible vehicle options, and integrated charging support. Combined with strong savings and trusted scheme design, it’s one of the most comprehensive EV salary sacrifice providers in the UK.
Is Salary Sacrifice Worth It In 2026?
Salary sacrifice remains one of the most effective ways to make your money go further in 2026, especially when it comes to electric cars. With low Benefit-in-Kind rates, reduced Income Tax and National Insurance, and rising living costs, EV salary sacrifice offers real, everyday value.
For employees, it’s a smarter, more affordable way to drive an electric car with fewer risks and no upfront costs. For employers, it’s a zero-net-cost benefit that supports recruitment, retention, and sustainability goals - making salary sacrifice, when done right, a win for everyone!
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Last updated: 22.01.26
Our pricing is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, and are inclusive of Maintenance and Breakdown Cover. The Electric Car Scheme's terms and conditions apply. All deals are subject to credit approval and availability. All deals are subject to excess mileage and damage charges. Prices are calculated based on the following tax saving assumptions; England & Wales, 40% tax rate. The above prices were calculated using a flat payment profile. The Electric Car Scheme Limited provides services for the administration of your salary sacrifice employee benefits. The Electric Car Scheme Holdings Limited is a member of the BVRLA (10608), is authorised and regulated by the FCA under FRN 968270, is an Appointed Representative of Marshall Management Services Ltd under FRN 667174, and is a credit broker and not a lender or insurance provider.
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