There’s a common assumption that salary sacrifice car schemes are only worth bothering with if you’re a higher-rate taxpayer. At 40% tax, the savings are obvious. But if you’re on around £40,000 a year and paying 20% income tax, the numbers still hold up better than most people expect. Let’s break them down.
How Salary Sacrifice Works at the 20% Tax Band
With a salary sacrifice arrangement, your employer takes the cost of the car from your gross pay before tax and National Insurance are calculated. That means you’re effectively paying for the car out of pre-tax income.
On a £40,000 salary, you’ll pay 20% income tax and 8% employee National Insurance on the portion of your salary that falls within the basic rate band. That’s a combined saving of around 28p for every pound you sacrifice. It’s not as dramatic as a higher earner’s 42p saving, but on a monthly lease figure of, say, £400, you’re still saving roughly £112 a month compared to paying from your take-home pay.
The Monthly Cost Compared to Personal Leasing and PCP
This is where salary sacrifice tends to look most compelling. When you sign a personal lease or PCP agreement, you’re paying with money that’s already been taxed. You’re also covering insurance, servicing and road tax yourself, which adds up fast.
Schemes that handle salary sacrifice for electric car access often bundle insurance, servicing, breakdown cover and road tax into a single monthly figure. When you factor all of that in, the all-inclusive salary sacrifice payment can sit well below what a comparable personal lease with added extras would cost you after tax.
A mid-range electric car with a personal lease might cost £350–£400 per month for the finance alone. Add £50–£80 for insurance, another £20–£30 for servicing cover, and you’re at £420–£510 before you’ve paid for a single charge. On salary sacrifice, all of that can fall within a single pre-tax deduction.
What Makes EVs Particularly Cheap Under This Scheme
The Benefit-in-Kind (BIK) tax rate for electric vehicles is currently just 3%, and while it will rise gradually, it remains far below petrol and diesel equivalents for years to come. HMRC has confirmed the rate will be 4% in 2026/27, 5% in 2027/28, and 7% from 2028/29.
For a basic-rate taxpayer in a £35,000 electric car, the annual BIK charge works out at roughly £210 per year, or about £17 a month. That’s negligible, and it’s why EVs are the obvious choice for salary sacrifice right now.
It is worth noting that from April 2025, electric vehicles are no longer exempt from Vehicle Excise Duty. New EVs registered from April 2025 pay just £10 in the first year, then the standard rate of £195 annually from year two. This removes one historical advantage of EV ownership but does not significantly change the overall cost picture given the savings available elsewhere in the scheme.
One thing to be aware of: EVs with a list price above £40,000 also attract a £425 annual supplement on top of the standard rate, bringing the total to £620 per year from years two to six. Many popular models on salary sacrifice schemes exceed this threshold, so it is worth checking the list price of any car you are considering.
Petrol or diesel cars under salary sacrifice face BIK rates of 20–37% depending on emissions. The tax charge quickly erodes your savings. With an EV, it barely registers.
Running Cost Savings If You’re Switching from a Petrol Car
If you’re moving from a petrol car, the day-to-day savings go beyond the monthly payment. Charging at home on a standard tariff currently costs around 24–25p per kWh under the Ofgem price cap, though drivers on dedicated off-peak EV tariffs can pay considerably less. Drivers who switch to a dedicated EV electricity tariff and charge overnight can reduce that unit rate further, sometimes to below 10p per kWh depending on the supplier and tariff.
Most modern EVs cover around 3–4 miles per kWh. Compare that to a petrol car averaging around 38–40 miles per gallon at approximately £1.50–£1.60 per litre, you’ll be spending roughly a third of the fuel cost for the same mileage.
Servicing costs are lower too. EVs have fewer moving parts, no oil changes and regenerative braking that extends the life of brake pads. Drivers switching from older petrol cars often find the day-to-day running costs drop noticeably in the first year:
- Reduced road tax costs compared to most petrol cars, new EVs registered from April 2025 pay just £10 in the first year, then the standard rate of £195 from year two
- No fuel duty
- Fewer and cheaper service intervals
- No exhaust, clutch or cambelt to worry about
The Verdict
At 20% tax, salary sacrifice won’t make an EV free. But when you combine the tax and NI savings, the BIK advantage on electric vehicles, the bundled running costs and the lower ongoing expenses compared to a petrol car, the scheme offers real value for basic-rate taxpayers.
The gap between what you’d pay privately and what you pay through your employer is often several hundred pounds a month. For a lot of people on around £40,000 a year, that’s worth taking seriously.
