How salary sacrifice works
You agree to give up part of your gross salary, and your employer provides a car in return, usually a new electric car with insurance, servicing and breakdown cover included. Because the money comes out before income tax and National Insurance, you save tax at your highest rate. The car is a taxable benefit, but electric cars have a very low benefit-in-kind (BIK) rate: 4% in 2026/27 and 5% in 2027/28.
Real monthly cost = sacrifice − income tax saved − NI saved + BIK tax
For a basic-rate taxpayer giving up £450 a month for a £40,000 car: tax saved is £90, NI saved is £36, and the BIK tax is £40,000 × 4% × 20% ÷ 12 = £26.67. The real cost is about £351 a month, a saving of about £99 a month compared with paying the same £450 from take-home pay.
Who saves most
- Higher-rate taxpayers save 40% income tax plus 2% NI, so the saving is usually larger.
- People with income just over £100,000 can save even more, because sacrifice can restore some of the personal allowance.
- Lower earners must stay above the National Minimum Wage after the sacrifice, so employers may limit who can join.
Things to check
- A lower salary can reduce pension contributions, life cover and some mortgage applications. Ask whether your employer bases these on your pre-sacrifice salary.
- Leaving your job early can mean an early termination charge, although many schemes include cover for this.
- Only electric and very low-emission cars make sense. A petrol car's BIK rate is so high that sacrifice rarely saves money.
Sources
- GOV.UK: Salary sacrifice for employers
- GOV.UK: Company car tax rates
- GOV.UK: National Insurance rates
Rates and rules last checked 15 October 2026. These figures are a guide. For a decision that matters, confirm with the official source.