For the past few years, electric cars offered through salary sacrifice schemes were an easy decision.
With Benefit in Kind (BiK) rates held at 0–2%, the tax savings were strong, predictable, and usually outweighed the cost of arranging a personal lease. As BiK rates begin to rise, that simple calculation no longer applies.
HMRC has now confirmed BiK rates for electric vehicles through to 2029/30, increasing gradually from 3% in 2025/26 to 9% by 2029/30.
These changes mean employers and employees must reassess whether salary sacrifice still provides the financial advantages it once did, particularly for new leases starting over the next few years.
Electric vehicles still bring clear benefits: lower running costs, the potential for reduced maintenance expenditure, and alignment with environmental and net-zero commitments.
The tax treatment, however, has become more complex. Understanding the impact of rising BiK rates is now essential for anyone reviewing EV benefits or planning new lease arrangements.
How salary sacrifice for electric cars works
Salary sacrifice allows an employee to give up a portion of their gross salary in exchange for a non-cash benefit, in this case, an electric vehicle.
Because the sacrifice is taken before tax and National Insurance (NIC), the employee ordinarily pays less tax, and the employer may also save on employer NIC.
What salary sacrifice covers
Under most EV salary sacrifice schemes, the sacrificed salary covers the full cost of a bundled lease arrangement. This can include:
- The vehicle lease
- Fully comprehensive insurance
- Servicing and routine maintenance
- MOTs (where required)
- Tyre replacement
- Breakdown cover and roadside assistance
The salary reduction lowers the employee’s taxable income, which is why these schemes historically produced meaningful tax and NIC savings.
Employers sometimes benefited as well, because the lower taxable salary reduced their NIC liability.
Why EVs were historically so tax-efficient
Electric vehicles became particularly attractive in salary sacrifice schemes due to the very low Benefit in Kind (BiK) rates applied to zero-emission vehicles.
- BiK was 0% in 2020/21, creating an exceptionally favourable tax position
- Rates increased only marginally to 1% in 2021/22 and 2% through to 2024/25
These low BiK percentages meant that the taxable value of the car was minimal, so employees paid very little additional tax for having a company-provided vehicle.
In many cases, the tax relief on the sacrificed salary exceeded the cost of leasing the car privately, making salary sacrifice a clear financial winner.
With BiK rates scheduled to rise each year until at least 2029/30, this automatic advantage has reduced, and the economics now need to be reviewed on a case-by-case basis.
The new BiK rates for electric vehicles (2025–2030)
HMRC has now confirmed the Benefit in Kind (BiK) rates that will apply to electric company cars through to the 2029/30 tax year.
These incremental increases mean electric vehicles will remain favourably taxed compared with petrol and diesel cars, but the gap will narrow over the second half of the decade.
Confirmed BiK rates for fully electric cars:
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
- 2028/29: 7%
- 2029/30: 9%
These figures are already legislated, which gives employers and employees a clear basis for planning future lease agreements and modelling the total cost of ownership over a multi-year period.
Why BiK rates are increasing
Recent tax updates and policy commentary highlight several reasons for the upward trend:
Normalising EV taxation
As electric vehicle adoption accelerates, the Treasury aims to move EV company car taxation closer to the mainstream car market. The original ultra-low rates were designed to support early adoption, not to remain permanent.
Addressing the revenue gap
A growing EV fleet means reduced fuel duty receipts and lower BiK income for the Exchequer. Increasing BiK rates helps rebuild part of this shortfall.
Maintaining environmental incentives at a reduced generosity
The government is still encouraging the transition to zero-emission vehicles, but the financial incentives are now moderated. EVs will continue to enjoy a lower BiK rate than internal combustion vehicles, but the advantage is smaller than before.
Overall, businesses now have certainty over the tax landscape for the next five years. This makes it easier to assess upcoming EV leases and understand whether salary sacrifice will continue to be cost-effective.
Why salary sacrifice is becoming harder to rely on
Salary sacrifice has been the default choice for many employers and employees considering electric vehicles, but the changing tax landscape means the calculation is no longer straightforward.
Several factors now influence whether a salary sacrifice arrangement actually delivers a financial benefit.
The rising BiK rate reduces the core saving
The main advantage of salary sacrifice comes from reducing taxable income. When BiK rates were close to 0%, this saving far outweighed the small amount of company car tax due on the vehicle.
As BiK increases, the balance shifts:
- The employee still gives up part of their salary, reducing their income tax and NIC.
- But they now pay more tax on the BiK value of the vehicle.
This means the saving created by the salary reduction reduces at the same time as the BiK cost increases.
Even without using specific numerical examples, the direction of travel is clear: the higher the BiK percentage, the less favourable salary sacrifice becomes.
How lease pricing interacts with tax efficiency
EV lease prices have fallen significantly over the past 12 months, driven by increased vehicle supply, manufacturer price cuts, and more competitive fleet offerings. This has been widely reported across brands such as Tesla, BMW, Hyundai, and MG.
Counter-intuitively, cheaper leases do not automatically make salary sacrifice more beneficial. The reason is simple:
- A lower lease cost reduces the amount of salary being sacrificed.
- This reduces the tax and NIC relief generated by the sacrifice.
- Meanwhile, BiK is calculated on the list price, not the lease price.
As a result, a very competitive lease deal can narrow the financial gap between salary sacrifice and taking the car privately. In some cases, the sacrifice may end up costing the employee more overall, despite the underlying lease being favourable.
The timing problem: when the lease starts now matters more than ever
The year in which an EV lease begins determines which BiK rates will apply across the contract. For example:
- A lease starting in 2026 will experience lower average BiK over a three-year term than one starting in 2028.
- Two identical cars on identical lease terms can therefore create very different tax outcomes depending solely on timing.
This is an area many employers overlook when planning fleet renewals. A small shift in the start date of a contract can materially change the cost to the employee and the employer.
Employer NIC savings are eroding
Historically, employers saved money because the sacrificed salary reduced their NIC liability. However, rising BiK rates erode this saving:
- Employer NIC is saved on the salary that is sacrificed.
- But employer NIC is also payable on the BiK.
- As BiK percentages rise, the NIC saved and the NIC charged begin to converge.
By the late 2020s, the two figures can become so close that the employer gains little or no financial benefit from the arrangement.
In some scenarios, the administrative burden of managing P11Ds and scheme administration outweighs the marginal NIC saving.
When salary sacrifice still works well
Despite the rising BiK rates, salary sacrifice remains a valuable option in many situations. The benefits have become more selective rather than universal, but there are still clear scenarios where the arrangement delivers strong value for both employees and employers.
Higher-rate taxpayers
Employees taxed at higher rates often continue to see meaningful savings. Because salary sacrifice reduces taxable income directly, the tax and NIC relief generated can still outweigh the BiK charge, especially where the leased vehicle represents a modest proportion of the employee’s overall salary.
Drivers with high annual mileage who value maintenance-inclusive packages
For employees who rely heavily on their vehicle, the bundled nature of salary sacrifice can be an advantage.
Servicing, tyres, repairs and breakdown cover are typically included, reducing both the financial and administrative burden. The predictability of monthly costs is attractive for high-mileage drivers.
Employers prioritising sustainability and ESG commitments
Many organisations are working towards net-zero strategies or expanding their environmental reporting. Offering EVs through salary sacrifice supports these objectives and can help signal a commitment to cleaner transport, even if the financial benefit is more modest than in previous years.
EVs with lower list prices or strong manufacturer incentives
Salary sacrifice tends to work best for vehicles with:
- Lower P11D values
- Limited optional extras
- Manufacturer-supported lease rates
- Strong residual value projections
These factors help reduce both the BiK charge and the cost of the salary sacrifice, keeping the arrangement competitive.
Large organisations using pooled or volume-negotiated schemes
Bigger employers can often secure more favourable lease terms through scale. When combined with structured scheme administration, predictable uptake and consistent policy, the financial benefits are more likely to be retained.
When a personal lease or company lease may be better
Salary sacrifice is not always the most cost-effective route for accessing an electric vehicle. As BiK rates rise and lease pricing becomes more competitive, there are several situations where a personal lease, or a traditional company car arrangement—may offer better value or greater flexibility.
Basic-rate taxpayers
Employees on the basic rate of income tax generate smaller tax and NIC savings from salary sacrifice. Once BiK is factored in, the overall cost difference compared with a personal lease can be marginal or, in some cases, unfavourable.
Very competitive lease pricing
Where leasing companies provide strong promotional offers or manufacturer-backed incentives, the personal lease may already represent excellent value. Because salary sacrifice savings depend on the size of the salary reduction, a cheaper lease naturally reduces the potential tax relief.
Limited flexibility in employment contracts
Salary sacrifice requires ongoing deductions from salary. If an employee anticipates changes such as parental leave, reduced hours, or relocation, they may be unable to continue with the arrangement. A personal lease often provides clearer options for managing contract changes.
Planned changes in employment status
Salary sacrifice can become problematic if an employee expects:
- A change of role
- A move to another employer
- A career break
- Retirement within the lease term
Early termination charges may apply, and responsibility for the lease contract must be resolved.
Employers who do not pass through NIC savings
Some employers retain the NIC savings to offset administration costs. Where this happens, the total financial benefit to the employee is reduced and may no longer outweigh the rising BiK charge.
Vehicles with high list prices
BiK is calculated as a percentage of the vehicle’s list price, not the lease price. Higher-value vehicles therefore attract proportionally higher BiK charges, which can significantly reduce the advantage of salary sacrifice.
Important risk considerations
Before entering into a salary sacrifice arrangement, both employers and employees should be aware of the potential risks:
- Early termination fees if employment circumstances change
- Scheme administration costs and contractual obligations for employers
- P11D completion requirements and associated reporting duties
- Contractual complexity, particularly where multiple benefits are bundled into a single lease
These factors can reduce or eliminate the financial gains that salary sacrifice once reliably offered.
What businesses should review in 2026–2027
With BiK rates rising each year until at least 2029/30, businesses need to approach upcoming EV decisions with more structure than before.
A proactive review now can prevent unexpected tax costs later and ensure benefits remain aligned with commercial and environmental objectives.
1. Assess existing EV drivers with leases expiring soon
Employees renewing EV leases over the next two to three years may find that the tax position has changed significantly since their last agreement.
Renewals made in 2027 or 2028 will fall under higher BiK rates, which can materially increase the cost for both the employer and the employee. Reviewing these cases early helps avoid surprises.
2. Evaluate new EV requests with a cost-benefit calculator
Given the narrowing gap between salary sacrifice and personal leasing, every new request should be assessed individually. A structured calculator can compare:
- Total employee cost under salary sacrifice
- Total cost under a personal lease
- Employer NIC savings or additional liabilities
This ensures decisions are based on objective, current data rather than assumptions that may have been true in previous years.
3. Revisit company car policies
Many company car policies were written when BiK rates for EVs were extremely low. Rising rates mean it is sensible to review:
- Eligibility criteria
- The level of employer subsidy
- Approved vehicle lists and P11D thresholds
- Environmental or ESG targets linked to fleet management
Updating internal policies helps maintain fairness and cost control while supporting strategic goals.
4. Review cash allowance vs company car benefits
In some cases, offering a cash allowance and allowing employees to arrange their own lease can reduce complexity for the employer and create clearer financial outcomes for the employee.
This approach removes employer NIC exposure, avoids P11D obligations, and provides flexibility if the employee’s circumstances change.
How Ryans can support you
As the financial landscape for electric vehicles evolves, accurate modelling is essential. We can support employers by providing:
- Detailed comparisons between salary sacrifice and personal lease options
- Tax and NIC modelling for both employee and employer positions
- Reviews of existing salary sacrifice schemes and renewal strategies
- Guidance on structuring EV benefits in line with current HMRC rules
- Multi-year planning using the confirmed BiK rates through to 2029/30
If you would like tailored advice on upcoming EV decisions or support in assessing your current arrangements, our team is here to help.