Answers · UK 2025/26
How is tax calculated on a salary sacrifice car scheme?
You give up part of your gross salary for a leased car, cutting income tax and the 8%/2% National Insurance on the sacrificed amount. In return you pay Benefit-in-Kind tax based on the car's list price and CO2-derived percentage. Electric cars carry very low BIK rates, so they usually still save you money in 2026/27.
Full answer
A salary sacrifice car scheme lets you exchange part of your gross (pre-tax) salary for the use of a leased vehicle. Because the sacrifice happens before tax, you no longer pay income tax (20%, 40% or 45%) or employee National Insurance (8% on earnings GBP 12,570-50,270, 2% above) on that slice of salary. The trade-off is that you become liable for Benefit-in-Kind (BIK) tax on the car as a company-car benefit. The BIK charge is the car's P11D list price multiplied by an 'appropriate percentage' set by its CO2 emissions, then taxed at your marginal income tax rate. Fully electric vehicles attract a very low appropriate percentage, which is what makes EV salary sacrifice attractive; petrol and diesel cars sit much higher, often wiping out the saving. The exact BIK percentage bands are set by HMRC and rise over time, so confirm the current figure for your specific car on gov.uk before committing -- do not assume. Worked illustration of the mechanism (not exact car figures): a higher-rate earner sacrificing GBP 6,000 of gross salary saves GBP 2,400 income tax (40%) plus GBP 120 NI (2% band) = GBP 2,520. If the car's taxable benefit produced, say, a GBP 1,000 BIK charge at 40% = GBP 400 of tax, the net annual gain would be around GBP 2,120 plus the value of the car, insurance and maintenance bundled in. Who it affects: employees whose employer offers a scheme. Watch that sacrificing salary can reduce other entitlements based on gross pay (mortgage affordability, statutory maternity pay, pension contributions if percentage-based) and must not take your pay below the National Living Wage of GBP 12.71/hr. Use a take-home pay calculator to model the salary reduction, then add the BIK tax separately to see the true cost.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.