How Salary Sacrifice Car Tax Works
This guide explains how salary sacrifice car tax works in the UK. For a full overview, see our salary sacrifice guide.
Salary sacrifice works by reducing your gross salary before tax in exchange for a company car.
This has two key effects:
- You pay less Income Tax and National Insurance
- You pay Benefit-in-Kind (BIK) tax on the company car
The balance between these determines whether you save money.
Why Electric Cars Are So Tax-Efficient
Electric cars have very low BIK tax rates compared to petrol and diesel cars. Learn more in our guide to how salary sacrifice works.
This means:
- The tax on the car is low
- The tax saved on salary is high
As a result, electric cars are usually the most cost-effective option under salary sacrifice.
Simple Example
Suppose you give up £500 per month from your salary:
Because electric car BIK rates are low, the overall cost is often much lower than paying for the same car privately.
What Is Benefit-in-Kind (BIK) Tax?
BIK tax is the tax you pay for receiving a company car as a benefit. See our company car tax calculator for detailed examples.
It is based on:
- The car’s list price
- The CO₂ emissions
- The BIK percentage set by HMRC
Electric cars have the lowest BIK percentages, which is why they are so popular.
OpRA Rules (Important)
Salary sacrifice is covered by Optional Remuneration Arrangements (OpRA) rules. You can read a full explanation in our OpRA guide.
These rules can limit tax savings when choosing between cash and benefits.
However, electric cars benefit from special tax treatment, so they remain tax-efficient under salary sacrifice.
When Salary Sacrifice Works Best
Salary sacrifice works best when:
- You are a basic or higher rate taxpayer
- The car has low emissions (especially electric)
- The BIK rate is low
Learn More About Salary Sacrifice
Try the Calculator
Want to see your own savings?