How Does Salary Sacrifice Work?
In simple terms, salary sacrifice means giving up part of your gross salary in exchange for a benefit—such as a car.
Because your salary is reduced before tax, you can pay less:
- Income Tax
- National Insurance
When used for cars — especially electric cars — this can significantly reduce the real cost of driving.
For a full overview and examples, see our main guide.
Here’s how a typical car salary sacrifice scheme works:
- You choose a car through your employer
- Your gross salary is reduced (e.g. £400–£600/month)
- You save tax and National Insurance on that amount
- You pay Benefit-in-Kind (BIK) tax on the car
- The result is often a lower net cost
Want to see your own savings? Use our Salary Sacrifice Calculator.
Why Salary Sacrifice Works For Cars
Salary sacrifice works particularly well for cars because:
- Employers can access corporate lease rates
- Costs are bundled (insurance, maintenance, etc.)
- Tax savings reduce the effective cost
This makes it easier and often cheaper than arranging everything privately.
Why Electric Cars Are So Popular
Get an EV or electric company car and your taxable benefit will be tiny for the tax years up to 2029-30.
The taxable benefit starts at 4% for the electric car in the current tax year 2026/27 and increases to 9% in 2029/30.
With these advantages the electric company car has definitely come of age in the employee perk market.
But whilst this advantage applies where an employee already has an entitlement to a company car, not everyone gets this much prized perk.
So what about those for whom a company car is a far-away dream?
Well, this is where an EV or Electric Car Salary Sacrifice plan comes into play.
What Does Electric Car Salary Sacrifice Do?
Salary Sacrifice allows an employee to trade part of their pay for a perk.
It could simply be a sacrifice of salary (or a bonus or overtime) in return for enhancements to an existing perk (e.g. better medical insurance cover or higher pension contributions).
But an EV or Electric Car Salary Sacrifice plan can allow an employee to access an entirely new perk for which they would never normally qualify.
And that's where Salary Sacrifice and electric cars come together.
Simple Salary Sacrifice Example
Suppose an employee gives up £500 of gross salary each month for an electric car.
- A 20% taxpayer could save around £100 in Income Tax (on the £500)
- Because the salary is reduced, employees typically save employee National Insurance
- They will pay BIK tax on the electric car
The final saving depends on the employee’s tax band, the car’s list price, the BIK percentage and the monthly salary sacrifice amount.
For a personalised estimate, use our Salary Sacrifice Calculator.
How Much Could I Save?
Despite the limitations we've just explained, providing electric or low CO2 company cars under a Salary Sacrifice plan still gives a cost and tax advantage over cash pay.
Salary Sacrifice can therefore be a highly attractive and cost/tax effective perk for an employee.
To help you work out whether you or your employer could benefit under a Salary Sacrifice plan, we've produced a free calculator to show the potential savings.
Salary Sacrifice FAQs
How does salary sacrifice work for an electric car?
An employee gives up part of their gross salary in exchange for an electric company car. Because the salary reduction is made before tax, the employee may save Income Tax and National Insurance, while paying Benefit-in-Kind tax on the car.
Why does salary sacrifice work well for electric cars?
Electric cars have low Benefit-in-Kind tax percentages compared with petrol and diesel cars, so the tax cost of the company car is usually much lower.
Do OpRA rules apply to electric car salary sacrifice?
Optional Remuneration Arrangements rules can apply where an employee gives up salary for a benefit. However, low-emission cars have specific treatment, which is why electric cars can still be tax-efficient under salary sacrifice.
Does salary sacrifice reduce gross salary?
Yes. Salary sacrifice reduces gross salary, which can affect Income Tax, National Insurance and sometimes salary-linked benefits such as pension contributions, bonuses or mortgage affordability.