The tax saving from a salary sacrifice electric car sounds significant in theory. This article puts concrete numbers behind it so you can see what the saving looks like for a basic-rate taxpayer and a higher-rate taxpayer side by side.
All figures in this article are clearly labelled as illustrative. They use 2026/27 tax rates but are not personalised tax advice. Your actual saving depends on your salary, the specific car chosen, and your individual circumstances. Verify all BIK rates and tax thresholds at GOV.UK before relying on any figure.
Key Takeaways
- A higher-rate taxpayer (40%) typically saves around 42p in combined income tax and NI for every £1 of salary sacrifice, before BIK tax is considered.
- A basic-rate taxpayer (20%) saves around 28p per £1 of salary sacrifice, before BIK tax.
- BIK tax on a fully electric car is calculated at 4% of the car’s P11D value in 2026/27, and is paid as an additional monthly payroll deduction.
- After netting the BIK tax against the income tax and NI saving, the effective monthly cost from take-home pay is substantially lower than the equivalent personal lease payment.
- For the full comparison framework and to see how your employer benefits too, read our salary sacrifice electric car guide.
The tax rates used in these examples
All figures use 2026/27 tax rates. Verify at GOV.UK before making decisions.
- Personal allowance: £12,570
- Basic rate (20%): applies to income from £12,571 to £50,270
- Higher rate (40%): applies to income from £50,271 to £125,140
- Employee National Insurance (2026/27): 8% on earnings between the Primary Threshold and Upper Earnings Limit; 2% above the Upper Earnings Limit
- BIK rate for fully electric cars: 4% of P11D value in 2026/27
The car used in the examples
Illustrative vehicle: A fully electric car with a P11D value of £38,000.
This figure is used purely for calculation purposes. P11D values change as manufacturers adjust list prices. Always check the current P11D value of the specific car you are considering.
Monthly sacrifice amount: £450 (the amount deducted from gross salary each month).
This figure represents what the leasing company charges the employer for the all-inclusive package (car, insurance, servicing, tyres, breakdown cover). The exact monthly cost varies by car, contract length, and mileage. This is an illustrative figure only.
Step 1: Calculate the monthly BIK tax
The Benefit-in-Kind tax applies because the car is treated as a company car benefit. It is calculated annually and collected monthly through payroll.
BIK calculation:
- P11D value: £38,000
- BIK rate 2026/27: 4%
- Annual BIK value: £38,000 × 4% = £1,520
- Monthly BIK value: £1,520 ÷ 12 = £126.67
The income tax on this monthly BIK value is:
- Basic-rate taxpayer (20%): £126.67 × 20% = £25.33 per month
- Higher-rate taxpayer (40%): £126.67 × 40% = £50.67 per month
These BIK amounts are added to the standard payroll deductions each month. They are modest relative to the tax saving from the sacrifice itself.
Step 2: Calculate the income tax and NI saving from the sacrifice
Each month, £450 is taken from gross pay before income tax and NI are calculated. The tax and NI that would have been paid on that £450 is the saving.
Basic-rate taxpayer (income comfortably in the 20% band, below £50,270)
- Income tax saving: £450 × 20% = £90.00 per month
- NI saving (at 8%): £450 × 8% = £36.00 per month
- Total monthly saving from sacrifice: £126.00
Higher-rate taxpayer (income in the 40% band, above £50,270)
- Income tax saving: £450 × 40% = £180.00 per month
- NI saving (at 2%, as they are above the Upper Earnings Limit): £450 × 2% = £9.00 per month
- Total monthly saving from sacrifice: £189.00
Step 3: Calculate the net monthly cost from take-home pay
The net monthly cost is what the car actually costs you in reduced take-home pay, after accounting for the tax and NI saving and the additional BIK tax.
Basic-rate taxpayer
| Item | Amount |
|---|---|
| Gross sacrifice deducted from pay | £450.00 |
| Income tax saving (20%) | -£90.00 |
| NI saving (8%) | -£36.00 |
| BIK tax payable (£126.67 × 20%) | +£25.33 |
| Net monthly cost from take-home pay | £349.33 |
The basic-rate taxpayer drives the same car for £349.33 per month from take-home pay rather than £450 — a saving of roughly £100.67 per month, or approximately 22%.
Higher-rate taxpayer
| Item | Amount |
|---|---|
| Gross sacrifice deducted from pay | £450.00 |
| Income tax saving (40%) | -£180.00 |
| NI saving (2%) | -£9.00 |
| BIK tax payable (£126.67 × 40%) | +£50.67 |
| Net monthly cost from take-home pay | £311.67 |
The higher-rate taxpayer drives the same car for £311.67 per month from take-home pay — a saving of £138.33 per month compared to spending £450 from post-tax income, or approximately 31%.
Step 4: Compare to a personal lease
If the same car were available on a personal lease (PCH) for £450 per month (the same gross cost used above), what would it actually cost from take-home pay?
A personal lease payment comes from post-tax income. To spend £450 post-tax, you first need to earn enough gross income to clear your tax and NI.
How much gross income does the basic-rate taxpayer need to cover a £450 personal lease?
- £450 post-tax requires approximately £625 gross (at 20% tax and 8% NI)
- The equivalent gross sacrifice is £450
- Salary sacrifice saves the basic-rate taxpayer the equivalent of ~£175 per month in gross income
How much gross income does the higher-rate taxpayer need to cover a £450 personal lease?
- £450 post-tax requires approximately £764 gross (at 40% tax and 2% NI)
- The equivalent gross sacrifice is £450
- Salary sacrifice saves the higher-rate taxpayer the equivalent of ~£314 per month in gross income
These comparisons are illustrative. Personal lease prices and salary sacrifice package costs are not always directly comparable because they may include different items (insurance, servicing). The principle — that salary sacrifice is materially cheaper than personal leasing for employed taxpayers — holds, but always compare like for like.
Step 5: What does the employer save?
The employer also benefits from salary sacrifice. When an employee’s gross salary is reduced, the employer pays less Employer National Insurance (13.8% in 2026/27) on that lower salary.
Illustrative employer NI saving (per employee):
- Monthly sacrifice: £450
- Employer NI rate: 13.8%
- Monthly employer NI saving: £450 × 13.8% = £62.10
- Annual employer NI saving: £745.20 per employee
For schemes with multiple employees, this employer NI saving typically more than covers the administration cost of running the scheme. This is why salary sacrifice car schemes are genuinely cost-neutral or cost-positive for most employers, not a concession employers make reluctantly.
What the numbers do not include
These worked examples cover the core income tax, NI, and BIK calculation. They do not account for:
- The mortgage implication: Your gross salary is reduced on paper, which some lenders use as the basis for mortgage affordability calculations. See our salary sacrifice electric car guide for detail.
- Statutory pay: Lower gross salary can reduce Statutory Maternity Pay, Statutory Sick Pay, and Statutory Paternity Pay if you need to access them.
- Pension contributions: If your pension contribution is calculated as a percentage of gross salary, a lower gross salary means lower contributions from both you and your employer in some schemes.
- Student loan repayments: Calculated on taxable pay. Lower taxable pay means lower monthly repayments, which reduces outgoings further but extends repayment.
Frequently Asked Questions
Do I pay BIK tax every month? Yes. BIK tax is collected monthly through payroll alongside your income tax and NI. Your employer reports the car’s P11D value to HMRC, which calculates your tax code adjustment. The BIK tax shows as a deduction on your payslip or is factored into your tax code. You will receive a P11D form at the end of each tax year confirming the taxable benefit amount.
What if the car’s P11D value is different from the list price I see on the manufacturer’s website? The P11D value is typically the list price including VAT and any factory-fitted options, but excluding the first year’s VED (road tax). It may differ slightly from the headline price advertised. Always ask your scheme provider for the specific P11D value of the car configuration you are choosing, because the BIK calculation uses this figure.
Does the saving get better or worse as BIK rates rise? The saving gets modestly smaller as BIK rates rise (because BIK tax increases), but it does not disappear. Even at the 2029/30 rate of 9% (verify at GOV.UK), the income tax and NI saving from the sacrifice still substantially outweighs the BIK tax for most higher-rate taxpayers. The saving narrows but remains compelling compared to personal leasing.