Did you know you can save money on your electric car with the salary sacrifice scheme? Our simple guide will explain everything you need to know.

What is an electric car salary sacrifice scheme?

Electric car salary sacrifice is an employee benefit scheme in the UK. 

The scheme works by taking a portion of your earnings before tax and using this to fund repayments on an electric car. Electric cars purchased through a salary sacrifice scheme work out much cheaper than if you privately leased or rented one yourself.

It works like other salary sacrifice schemes – you may not know it, but you probably already use them! Examples include childcare, professional development, cycle-to-work initiatives, and pension contributions.

At a glance: How does the electric vehicle salary sacrifice scheme work?

A salary sacrifice for electric cars allows you to choose a car from your employer’s approved list of electric vehicles (Or EV for short).

A salary sacrifice electric car scheme gives you access to a company car. Your employer will lease the vehicle from a provider and, in turn, lease it to you under the scheme. 

You pay a portion of your salary to cover the monthly lease payments. These set monthly payments are deducted from your gross salary. Your gross salary is your pay before any deductions for tax and national insurance contributions.

Am I eligible for an EV salary sacrifice scheme?

Your company will either have to be already operating an electric vehicle salary sacrifice scheme or agree to set one up. Therefore, you can only use a salary sacrifice scheme if your employer offers one.

In addition, you will need to be over 18 and have a clean driving license. Salary sacrifice electric car schemes come with insurance, and it is easier to get insurance if you have fewer points on your driver’s license.

On the plus side, deposits and credit checks are not usually required for salary sacrifice.

How does the EV salary sacrifice scheme work for an employee?

Most electric car salary sacrifice schemes work as follows:
1.  You choose an EV from a list that your company has approved
2.  You sign up to lease the car for a set period, typically two to four years
3.  At the end of the contract, you can exchange the electric car for a brand new electric vehicle or one, buy it, or simply hand it back
4.  If you hand it back, you might have to pay fees for excess mileage and fair wear and tear charges

Most schemes offer a range of comprehensive benefits, including:
1.  Road tax
2.  Insurance
3.  Tyre and glass repair and replacement
4.  Servicing and maintenance
5.  Breakdown recovery
6.  Accident management

This means that there are only three things you need to pay for:
1.  The lease or rental cost of the car, which is deducted from your gross pay before tax and NI contributions
2.  Benefit in Kind (BIK) tax – This is just 2% of the vehicle’s value and will be until at least 2025 (See below for more information on BIK)
3.  Energy – You are still required to pay for the electricity to run your car, in the same way as you would have to pay for fuel in a diesel or petrol company car

The main benefits of an electric car salary sacrifice for employees are:
1.  It costs you up to 60% less to lease an EV this way than if you privately leased one
2.  This opens up new possibilities for cars that were out of your budget before
3.  You don’t have to worry about insurance, maintenance, or repairs
4.  You will make huge savings on “fuel” compared to a diesel or petrol car

How does EV salary sacrifice work for businesses?

There are significant benefits to businesses running electric car salary sacrifice schemes. Leasing a zero-emission company car through a salary sacrifice scheme generates monthly NI savings for you as an employer. This is because the NI contributions are lower as they are deducted after the salary sacrifice rather than the employee’s gross salary. As a result, both you and your employee save money!

At a time when labour shortages are starting to bite, staff recruitment and retention are more important than ever. Offering an electric car salary sacrifice scheme is a great incentive, helping you to attract and retain workers.

Many companies have set clear climate goals to reduce emissions from their operations – and driving down emissions from company vehicles can play a crucial role.

An area of increasingly intense focus is the “grey fleet”, which is employees’ use of their cars in the company business. These vehicles are often older, more polluting and poorly maintained than company vehicles, leading to increased road safety risks and higher carbon emissions.

Offering an electric car salary sacrifice scheme to staff can be a crucial plank in your grey fleet management strategy by giving employees access to a new, ultra-low emission, fully insured and maintained car. Your employees will not only be driving new EVs, which are better for the environment, but vehicles you know are fully serviced, maintained, insured, and covered for road tax.

In this way, a salary sacrifice car scheme can be an excellent opportunity for employers to help employees who have never been exposed to company cars.

Choosing a car is a major life decision for any employee. Employers can help by making that choice as clear and straightforward as possible with a well-managed electric car salary sacrifice scheme.

What are the benefits and drawbacks of an electric vehicle salary sacrifice scheme for an employee?

What are the specific benefits of an EV salary sacrifice scheme?

As outlined above, when you exchange part of your salary for a new electric car, you pay lower income tax and also pay less national insurance contributions. The cost of the vehicle is deducted from your gross monthly salary, meaning your income tax and NI contributions are based on your revised pay.

In addition, your employer may also be able to recover the VAT on the rental and maintenance costs and pass those savings on to you. You can’t recover these if you are leasing an EV privately. The UK’s electric car salary sacrifice scheme is one of the most cost-effective ways to access a new EV in this country.

Furthermore, once you get behind the wheel, you can enjoy additional savings compared to driving a petrol or diesel car – particularly far cheaper “fuel” and zero road tax. And, of course, you will also be doing your bit to reduce our nation’s carbon footprint. 

Another advantage of electric car salary sacrifice schemes is that they cover almost all the other expenses you usually pay as a motorist. For example, most electric car salary sacrifice schemes include:

Some even include full vehicle roadside breakdown cover, recovery and accident management. 

On top of all these benefits, you can also get a brand-new car every few years! When the lease ends, you return your electric vehicle and replace it with a new one. Some schemes also enable you to insure your partner or another family member on the car, making it even more attractive.

What are the drawbacks of the salary sacrifice scheme?

With an electric car salary sacrifice scheme in the UK, there are no real drawbacks – you are getting a great EV at a phenomenal saving!

For example, while petrol and diesel cars are cheaper to buy outright than EVs, they have much higher benefits in kind tax (BIK) rates for the salary sacrifice schemes. Add in the “fuel” savings of running an electric car, and you’re quids in!

It is not a drawback, but you should always know that you don’t own a salary-sacrifice electric car. This isn’t as unusual as you might think – it is precisely the same as with any other company car, privately leased car, or even a car bought on finance. And if you fall in love with your new EV, some electric car salary sacrifice schemes give you the option to buy at the end of the lease.

If employers do not already offer a salary sacrifice scheme, then some investment is required to set it up – mainly in identifying the right provider for you. And there is some administration to do – salary sacrifice schemes always involve more paperwork!

Contact Rightcharge, and we can help make your scheme simple and easy to run.

What is Benefit in Kind tax?

The significant saving with an electric car salary sacrifice is that you pay tax on the value of the benefit you receive by getting an EV – this is called Benefit In Kind (BIK tax).

To understand more about benefit in kind tax, click here.

Electric vehicle salary sacrifice FAQs:

Here are answers to some of the most frequently asked questions about electric car salary sacrifice schemes:

1. How long do EV salary sacrifice schemes last?

Most salary sacrifice schemes are for set periods, from two to four years, and allow you to drive the car for both company business and personal use.

2. Which electric cars qualify for the salary sacrifice scheme?

In the case of an electric car salary sacrifice scheme, you will choose a car from a list of vehicles approved by your employer. Most schemes offer an extensive list, enabling you to find a car that suits your needs and budget.

3. Can you buy a used electric car on the salary sacrifice scheme?

The short answer is yes and no – or rather, no and yes! You can’t buy a car directly through salary sacrifice. It is initially a lease. Generally, at the end of the lease period, you would return the vehicle and sort any fees for any excess mileage or wear and tear. The leasing company takes the car back and then typically sells the vehicle on the second-hand market.

However, with some electric car salary sacrifice schemes, you can buy the vehicle at the end of the lease. The price will be based on the EV’s market value, which is determined by age, condition, and mileage. If you hope to buy the car at the end of the lease, ensure this is an option before you sign the paperwork.

4. Will I pay more tax with the electric car salary sacrifice scheme?

You will not end up paying more tax! The idea at the heart of an electric car salary sacrifice scheme is that employees reduce their taxable income, so they pay less in income tax and National Insurance. By doing this, employees end up saving money. There are three key tax savings, as follows:

– Income tax:

HMRC calculates the amount of income tax based on how much you earn. There are different tax bands, with lower earners paying a lower percentage of their income in tax.

The way that salary sacrifice schemes work is that you give up a portion of your income in exchange for a benefit. Income tax is generally calculated as a percentage of your gross wage minus certain exemptions. With a salary sacrifice scheme, your car payment comes off your wages before HMRC takes the tax. Therefore, you have a lower income and therefore pay less income tax.

–  National Insurance (NI)

NI is a separate tax which is intended to pay for our social safety net – things like the NHS, state pensions, and social care. Like income tax, NI is based on how much you earn. Both employees and employers must make an NI contribution based on their gross income.

Salary sacrifice is great for employers and employees because it reduces taxable income. This means your NI contributions are lower, and your employer has to pay a lower NI contribution for you, too. This is a rare case of a win-win!

–  Value-Added Tax (VAT)

VAT is a tax applied to almost all consumer goods and services, currently at a rate of 20%. If you purchase or lease an EV yourself, you would have to pay VAT on the vehicle. However, thanks to electric car salary sacrifice schemes, the employer is responsible for the lease, and so the employer pays the VAT. In most cases, the employer can reclaim VAT back from the Government.


An electric car salary sacrifice scheme provides a cost-effective way to access an electric vehicle, allowing you to save on your tax and national insurance. Whether you’re an employee looking to save money or an employer aiming to reduce emissions and attract talent, this scheme is a win-win solution.

If you’ve got more questions about electric car salary sacrifices, then get in touch! 

Our friendly team with expert advice are only a click away. Email us at customercare@rightcharge.co.uk.

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