Salary Sacrifice Company Car: Is It Worth it in 2026?
What Is a Salary Sacrifice Company Car?
A salary sacrifice company car is an employee benefit where you agree to reduce your gross salary in exchange for a company vehicle. Unlike traditional company car schemes where your employer provides a vehicle directly, salary sacrifice allows you to choose from a wide range of electric vehicles and pay for them through pre-tax salary deductions. Your business has to sign up to participate in an electric car salary sacrifice scheme.
In 2026, electric car salary sacrifice schemes have become the most cost-effective way to access a new vehicle, with savings of 20-50% compared to personal leasing or purchasing.
How it works:
Your employer partners with a salary sacrifice provider like The Electric Car Scheme
You select an electric vehicle within your budget
The monthly cost is deducted from your gross salary (before tax)
You benefit from reduced Income Tax and National Insurance contributions
Everything is included: insurance, optional maintenance, breakdown cover, and tyres
How Much Can You Save with a Company Electric Car Scheme?
The savings from a salary sacrifice company car vary depending on your tax bracket, but all employees benefit from reduced Income Tax and National Insurance contributions alongside the low 3% Benefit-in-Kind rate for electric vehicles.
For basic-rate taxpayers:
Basic-rate taxpayers (20% Income Tax bracket) still achieve substantial savings through salary sacrifice. For a Nissan Leaf with a £350 monthly lease cost:
Standard monthly lease: £350
Income Tax savings (20% bracket): -£70
National Insurance savings: -£7
Benefit-in-Kind tax (3%): +£32
Your actual monthly cost: £305
This represents a 13% saving on the monthly cost, with additional savings of approximately £600 annually on fuel costs compared to petrol vehicles. Basic-rate taxpayers benefit particularly from the reduced National Insurance contributions and ultra-low BiK rate, making salary sacrifice accessible and affordable across most salary brackets.
For higher-rate taxpayers:
Higher-rate taxpayers (40% Income Tax bracket) see the most dramatic savings. For the same Nissan Ariya with a £584 monthly lease cost:
Standard monthly lease: £584
Income Tax savings (40% bracket): -£234
National Insurance savings: -£12
Benefit-in-Kind tax (3%): +£55
Your actual monthly cost: £393
This represents a 32% saving before considering fuel and maintenance costs. Higher-rate taxpayers maximise the tax efficiency of company electric car schemes, often saving £2,000-£3,000 annually compared to personal leasing or purchasing. Additional-rate taxpayers (45%) save even more, with tax relief effectively covering nearly half the monthly lease cost.
If you are close to minimum wage:
Employees earning close to National Minimum Wage need careful consideration when choosing a salary sacrifice company car. Your post-sacrifice salary must remain above the legal minimum wage threshold for your age bracket. For example, if you earn £25,000 annually and the National Minimum Wage threshold for your age is £23,000, you have £2,000 available for salary sacrifice (approximately £166 monthly).
This means more affordable electric vehicles like the Dacia Spring (from £128 monthly) or MG4 remain accessible options. The Electric Car Scheme's eligibility calculator automatically checks minimum wage compliance and suggests suitable vehicles within your available budget. Even with a modest salary sacrifice amount, you still benefit from reduced tax and National Insurance, plus significantly lower running costs compared to petrol vehicles - making electric car ownership more achievable than ever.
Use our salary sacrifice calculator to see your personalised savings based on your exact salary and tax bracket.
Comparing Company Car Options
| Vehicle Type | BiK Rate | Monthly Cost (Example) | Annual Fuel Cost | Annual Tax Savings |
|---|---|---|---|---|
| Electric (salary sacrifice) | 3% | £393 | £680 | £2,952 |
| Petrol company car | 25-37% | £584+ | £1,268 | £0 |
| Hybrid company car | 8-12% | £520+ | £950 | £768 |
Based on 40% tax bracket, 10,000 miles annually
Use our EV savings calculator to see your personalised savings.
What's the difference between salary sacrifice vs company-owned car?
A company-owned car is a vehicle purchased or leased directly by your employer and provided to you as part of your employment package. With this arrangement, your employer owns the asset, handles all administration, and you pay Benefit-in-Kind tax on the vehicle's value. Your gross salary remains unchanged, but you're taxed on the benefit of having access to the company car.
With an electric car salary sacrifice scheme, you choose the vehicle and agree to reduce your gross salary to pay for it. While your employer arranges the lease on your behalf, you effectively control the selection and the monthly cost comes from your pre-tax income. This means you save on both Income Tax and National Insurance, making it significantly more tax-efficient than a traditional company-owned car arrangement. Company-owned cars typically have BiK rates between 25-37% for petrol vehicles, whilst salary sacrifice for electric vehicles benefits from just 3% BiK in 2025/26. Most employees find salary sacrifice offers greater choice, flexibility, and substantial cost savings compared to traditional company car schemes.
Is a Salary Sacrifice Company Car Worth It?
Yes, for most employees. Here's why:
Financial Benefits
Lower running costs: Electric cars cost 3-5 times less per mile than petrol vehicles. With average annual fuel savings of £600-£1,500, your total cost of ownership drops significantly.
Reduced maintenance: EVs have 50% lower servicing costs due to fewer moving parts, potentially saving £600-£1,200 annually compared to petrol company cars.
Tax advantages: The 3% BiK rate for electric vehicles is substantially lower than the maximum 37% for high-emission petrol company cars.
No upfront costs: Unlike purchasing or leasing, salary sacrifice requires no deposit or initial payment.
VED exemption: While electric vehicles now pay road tax from 2025, the rates remain significantly lower than petrol equivalents.
Non-Financial Benefits
Convenience: Everything is included in one monthly payment - insurance, servicing, breakdown cover, and tyre replacement.
No depreciation risk: You're not responsible for the vehicle's resale value at the end of the term.
Latest technology: Access to the newest electric vehicles with advanced safety features and technology.
Environmental impact: Reduce your carbon footprint with zero tailpipe emissions.
Home charging savings: With off-peak electricity tariffs, overnight charging costs as little as £4.50 for a full charge.
Who Qualifies for Salary Sacrifice Company Cars?
Most employees can access company electric car schemes, but there are specific eligibility criteria:
Standard Requirements:
Minimum salary: Typically £20,000+ annually
Employment status: Permanent contract (probation periods may apply)
Residency: UK resident with valid driving licence
Post-sacrifice salary: Must remain above National Minimum Wage
Credit check: Basic affordability assessment required
Important Considerations:
National Minimum Wage: Your salary after the deduction must not fall below the legal minimum wage for your age bracket.
Pension impact: Salary sacrifice can reduce pension contributions if based on salary. Learn more about salary sacrifice and pensions.
Mortgage applications: Reduced gross salary may affect mortgage affordability calculations, though most lenders accept explanatory letters.
Maternity/paternity pay: Statutory payments are based on pre-sacrifice salary, protecting your entitlements.
What happens if tax rates change?
Your salary sacrifice company car costs are directly affected by Income Tax and National Insurance rates, as these determine your monthly savings. If the government increases tax rates, your savings typically increase proportionally since you're paying for the vehicle from pre-tax income. Conversely, if tax rates decrease, your savings reduce slightly - though you'd be paying less tax overall anyway.
The Benefit-in-Kind rate for electric vehicles is confirmed at 3% for 2025/26, rising gradually to 9% by 2029/30. These rates are set by government policy and apply to all company electric car schemes. If BiK rates change during your lease term, your monthly Benefit-in-Kind tax payment adjusts accordingly. However, even with the planned increases to 9%, electric car salary sacrifice remains substantially more tax-efficient than petrol company cars with BiK rates up to 37%. The Electric Car Scheme provides updated cost calculations when rates change, ensuring you always understand your true monthly cost. Most salary sacrifice agreements include provisions for tax rate changes, protecting both you and your employer from unexpected variations in the arrangement.
What Happens If You Leave Your Job?
One of the biggest concerns about salary sacrifice company cars is what happens if your employment ends. With The Electric Car Scheme's Complete Employer Protection, both employees and employers are protected from day one.
Your Options:
New employer offers the scheme: Transfer your vehicle to your new employer's scheme
No scheme at new employer: Return the vehicle with no penalty
Keep the vehicle: Continue payments privately (subject to affordability assessment)
Early termination: Unlike personal leases, you're not liable for the remaining lease value if you lose your job, are made redundant, or resign. Learn more about early termination.
Salary Sacrifice vs. Traditional Company Car
Understanding the difference between salary sacrifice and traditional company cars helps you choose the right option:
| Feature | Salary Sacrifice | Traditional Company Car |
|---|---|---|
| Vehicle choice | Wide range of EVs | Limited pool |
| Tax efficiency | 20-50% savings | Standard BiK rates apply |
| Personal use | Fully included | Often restricted |
| Mileage limits | Flexible options | Often stricter limits |
| Early termination | Protected | May incur fees |
| Insurance | Included | Usually included |
| Maintenance | Included | Usually included |
Winner: Salary sacrifice offers greater flexibility, choice, and savings for most employees.
Compare your options with our guide on salary sacrifice vs. business leasing.
Salary Sacrifice Company Car vs. Car Allowance
Many employees face the choice between a car allowance and a salary sacrifice company car.
Car Allowance:
Cash payment (typically £3,000-£8,000 annually)
Fully taxable as income
You arrange your own vehicle, insurance, and maintenance
Greater flexibility but higher costs
Salary Sacrifice Company Car:
Pre-tax arrangement
Everything included
Lower BiK rates (3% for EVs)
More cost-effective for most employees
Example Comparison (40% tax bracket):
£5,000 car allowance:
After tax: £3,000
Need to find, insure, and maintain vehicle
Fuel costs: £1,268+ annually
£5,000 salary sacrifice:
After tax savings: £2,000+
Vehicle, insurance, maintenance included
Fuel costs: £680 annually
Verdict: Unless you need extreme flexibility or already own a vehicle outright, salary sacrifice typically offers better value.
How to Set Up Salary Sacrifice Company Cars
Setting up a salary sacrifice company car is straightforward with the right provider:
For Employees:
Check eligibility: Confirm your employer offers The Electric Car Scheme
Browse vehicles: Use our salary-based car finder
Calculate savings: Check exact costs with our salary sacrifice calculator
Submit application: Complete online application with basic details
Credit check: Quick affordability assessment
Order vehicle: Choose specifications and place order
Await delivery: Typical lead time 8-16 weeks
For Employers:
Implementing a company electric car scheme has zero cost to your business:
No setup fees
No administrative burden
Complete Employer Protection from day one
Boosts employee retention and attraction
Supports ESG goals
Common Questions About Company Car Salary Sacrifice
Does salary sacrifice affect my take-home pay?
Yes, but the tax savings often offset the reduction. While your gross salary decreases, you pay less Income Tax and National Insurance, plus you benefit from the low 3% BiK rate. Most employees find their net position significantly better than personal leasing.
Can I use a salary sacrifice company car for personal use?
Absolutely. Unlike some traditional company car arrangements, salary sacrifice vehicles are available for unlimited personal use, including commuting, weekends, and holidays.
What's included in the monthly payment?
Everything except fuel/charging:
Vehicle lease
Comprehensive insurance
Scheduled maintenance and servicing
Breakdown cover
Tyre replacement (wear and tear)
Road tax (VED)
For charging costs, consider The Charge Scheme to salary sacrifice charging and save an additional 20-50%.
How does home charging work?
Most drivers install a home charger, which can be included in your salary sacrifice package. This allows overnight charging at cheaper off-peak rates. Without a driveway, you can use workplace charging, public charging networks, or explore alternatives without a driveway.
What happens at the end of the lease?
You have three options:
Return the vehicle: Hand back the car and choose a new one
Extend the lease: Continue with the same vehicle (subject to availability)
Purchase the vehicle: Buy the car at market value (not always available)
Most drivers choose to return the vehicle and select a newer model with the latest technology.
Does salary sacrifice affect other benefits?
Potentially, for benefits calculated on gross salary:
Pension contributions: May reduce if based on salary percentage (though tax savings can offset this)
Life insurance: May decrease if calculated on gross salary
Mortgage applications: Requires explanation to lenders
Statutory payments: Protected - based on pre-sacrifice salary
Learn more about salary sacrifice and pensions.
Can I salary sacrifice if I have a variable salary?
Yes, but it requires careful consideration. If you receive bonuses, commission, or have variable hours, discuss with your provider how this affects your arrangement. Read our guide on electric car salary sacrifice and variable pay.
What if I'm on maternity or paternity leave?
Your statutory maternity/paternity pay is protected and calculated on your pre-sacrifice salary. However, you'll need to continue the salary sacrifice payments. Some employers offer flexibility during parental leave - discuss options with your HR department.
Is Company Car Salary Sacrifice Right for You?
Salary sacrifice company cars are ideal if you:
Want to drive a new electric vehicle
Have stable employment
Drive regularly (making it more economical than occasional car use)
Want hassle-free motoring with everything included
Value tax-efficient arrangements
Don't need to maximise gross salary for mortgage applications immediately
Consider alternatives if you:
Need maximum salary flexibility for a mortgage application
Already own a vehicle outright you're happy with
Have extremely variable income
Drive very low mileage (under 3,000 miles annually)
Prefer to build vehicle equity
Getting Started with The Electric Car Scheme
The Electric Car Scheme is the UK's leading salary sacrifice provider, offering:
For Employees:
Save 20-50% on any electric vehicle
Access to 500+ models
Everything included in one monthly payment
No deposit required
Complete protection if circumstances change
For Employers:
Zero setup costs
No administrative burden
Complete Employer Protection from day one
Support your ESG initiatives
Attract and retain talent with valuable employee benefits
Ready to Save on Your Company Car?
Employees: Check if your employer offers The Electric Car Scheme, or share this guide to encourage them to sign up.
Employers: Book a demo to discover how easy it is to implement a company electric car scheme.
With the 3% BiK rate for 2025/26 and savings of 20-50%, there's never been a better time to switch to a salary sacrifice company car.
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Last updated: 12/01/2026
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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