Glossary · UK
What is Electric Vehicle Salary Sacrifice Scheme?
A workplace benefit letting employees lease a fully electric car through salary sacrifice, cutting Income Tax and National Insurance while benefiting from a low company car Benefit in Kind rate.
Full Definition
An electric vehicle salary sacrifice scheme lets an employee give up part of their gross salary in exchange for their employer leasing them a fully electric car, with the lease, insurance, maintenance and typically a home charging point all bundled into a single monthly cost taken from pay before Income Tax and National Insurance are calculated. Because the salary given up reduces gross pay, the employee saves Income Tax and Class 1 employee National Insurance on the sacrificed amount, and the employer saves its 15% employer secondary Class 1 National Insurance too, but the employee is instead taxed on the car as a Benefit in Kind, calculated as the car's list price multiplied by its BIK percentage rate -- which for zero-emission electric cars is set at a low rate that has made EV salary sacrifice schemes significantly more attractive than sacrificing salary for a petrol or diesel car, where the BIK percentage is much higher. Because the tax benefit depends on comparing the Income Tax and NI saved on the sacrificed salary against the BIK tax charged on the car, an EV salary sacrifice scheme is generally most valuable for higher and additional-rate taxpayers, and the numbers can shift with each Budget as the government adjusts the BIK percentage bands for electric and other zero-emission vehicles over successive tax years. Employees considering a scheme should also check the anti-avoidance "optional remuneration arrangements" rules, which prevent salary sacrifice from being used to reduce tax on most other benefits, but from which qualifying ultra-low and zero-emission cars are specifically excluded, preserving the tax advantage for EV schemes in particular.