Answers · UK 2025/26
How does a salary sacrifice car scheme work in the UK?
A salary sacrifice car scheme lets you give up salary in exchange for a lease car provided by your employer. You save Income Tax and NI on the sacrificed amount. Electric vehicles attract a 4% Benefit-in-Kind (BIK) rate in 2026/27, making EV salary sacrifice particularly tax-efficient.
Full answer
A **salary sacrifice car scheme** (also called a company car via salary sacrifice) lets employees exchange gross salary for a lease car, saving Income Tax and National Insurance on the value of the sacrifice. For electric vehicles the savings can be dramatic. **How it works:** 1. You agree to give up a portion of salary (e.g. £500/month gross) 2. Your employer provides a lease car as a benefit in kind (BIK) 3. You pay Benefit-in-Kind tax on the car's P11D value × BIK percentage 4. You save IT and NI on the sacrificed salary **Benefit-in-Kind (BIK) rates 2026/27:** | Fuel type | BIK % | |---|---| | Fully electric (EV) | **4%** | | Plug-in hybrid (30–39g/km CO2) | 14% | | Petrol/diesel (100g/km CO2) | ~28% | | Petrol/diesel (150g/km CO2) | ~34% | | Petrol/diesel (200g/km CO2) | ~37% | **EV salary sacrifice example:** Car P11D value: £40,000. BIK rate: 4%. Annual BIK: £1,600. Tax on BIK (20% basic-rate): £320/year. If you sacrifice £600/month (£7,200/year), you save 20% IT + 8% NI = 28% × £7,200 = £2,016 in tax/NI — minus £320 BIK tax = **net saving £1,696/year** on a £600/month car. **OpRA rules (Optional Remuneration Arrangements):** From April 2017, salary sacrifice for most cars was restricted by OpRA rules — the taxable benefit is the higher of the BIK amount or the cash salary foregone. However, **Ultra-Low Emission Vehicles (ULEVs, including EVs)** are exempt from OpRA, so EV salary sacrifice retains its full tax advantage. **Petrol/diesel cars:** For non-ULEV cars, OpRA caps the benefit at the salary foregone — eliminating most IT and NI savings. These schemes are therefore much less attractive for petrol/diesel cars. **Employer NI savings:** Employers also save 13.8% NI on the sacrificed salary — making the scheme beneficial both ways. Many employers pass some saving back as a contribution to the lease cost. **Mortgage/credit impact:** Salary sacrifice reduces your gross pay on payslips. Some mortgage lenders treat this as lower income. Ask your broker or lender how they assess salary sacrifice when applying for a mortgage.
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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.