Salary sacrifice schemes explained
The Government outlined Benefit-in-Kind tax rates on electric vehicles for the next three years offering further assurances and clarity for businesses. This has further increased the attractiveness of getting a new vehicle via a salary sacrifice scheme.
For electric cars, the BiK (Benefit in Kind) rate is 3 percent for the 2025/26 financial year. The rate will rise to just 4 percent in 2026/27. This means this tax break could make salary sacrifice an “effectively perfect” perk for drivers who want electric cars. This rate will rise again to 5 percent for 2027/28.
For vehicles ordered on or after 6th April 2017
Under an Optional Remuneration Arrangement (OpRA) which includes Salary Sacrifice, the following rules apply:
A driver will be taxed on whatever the greatest is between:
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The Benefit-in-Kind (BiK) value of the car (based on CO₂ emissions and P11D value), or
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The amount of salary sacrificed (i.e. the gross amount given up for the car).
This applied to non-Ultra Low Emissions Vehicles (non-ULEVs)
A driver will not pay income tax on the amount of salary sacrificed to cover the maintenance and insurance elements in the agreement, saving them money. Even more savings can be had by encouraging employees to opt for low emission vehicles, as drivers will only be charged the benefit-in-kind on the vehicle, providing savings for the amount of salary sacrificed.
How does a salary sacrifice scheme work?
Salary Sacrifice is a benefit scheme that enables employees to get a brand-new electric car. As part of the group behind Evans Halshaw and Stratstone, we can offer your employees amazing corporate discounts on new cars and an all-inclusive fixed monthly price that includes tax, insurance, maintenance and more.
As the employer, you lease the car on behalf of your employee, and they then get to drive a brand-new car using part of their gross salary - making savings on income tax and national insurance.
The benefits of salary sacrifice
The benefit of salary sacrifice is always the convenience of an all-inclusive monthly fee that incorporates an EV charger, full maintenance, tyres, insurance, road tax and breakdown cover, as well as the fact that no credit check or deposit is required.
A new car can help increase employee motivation, leading to improved productivity and retention, and as the employer it costs you nothing to set up and is easy to run. There is no catch, and is really great value for money.
The employee car benefit scheme offered by Pendragon Vehicle Management offers the ultimate work benefit with employees saving whilst employers see increased retention alongside savings in NI and corporation tax contributions. Our scheme can be set up in as little as seven days and with cars readily available, your employees could be in a car in the same time frame.
Book a discovery call with our team here.
Other potential savings
The main advantage to employers for implementing salary sacrifice schemes are the savings they make in National Insurance Contributions (NICs). Employers pay NIC contributions to employees’ salaries, but benefits such as salary sacrifice are exempt.
Employees will also be financially better off as they pay less tax and NIC on their salaries while getting to enjoy a brand-new vehicle that would have cost significantly more through personal or business contract hire.
If choosing an electric car, employees can typically save 30 to 40 percent of costs through income tax and national insurance.
