Is Salary Sacrifice Still a Good Way to Source an Electric Vehicle After the Rise in BiK Rates?

The UK’s electric vehicle (EV) salary sacrifice schemes have long been an attractive option for employees seeking tax-efficient access to low-emission vehicles.

However, with the Benefit-in-Kind (BiK) rate for EVs increasing from 2% to 3% in April 2025, and further incremental rises planned, many are questioning whether these schemes still offer substantial benefits.

What Is Salary Sacrifice for EVs?

Salary sacrifice allows employees to forgo a portion of their gross salary in exchange for a non-cash benefit—in this case, an electric vehicle.

This arrangement reduces both income tax and National Insurance contributions (NICs), making EVs more affordable. Employers also benefit from reduced NICs on the lower salary.

If you're considering an electric car scheme for the first time you'll find our Salary Sacrifice overview really useful

The Impact of BiK Rate Increases

From April 2025, the BiK rate for EVs increased to 3%, with planned rises to 4% in 2026/27, 5% in 2027/28, 7% in 2028/29, and 9% in 2029/30. 

Despite these increases, the BiK rates for EVs remain significantly lower than those for petrol or diesel vehicles, which can reach up to 37%.

For example, a higher-rate taxpayer driving a petrol BMW X5 in 2025 faces an annual BiK tax of approximately £10,166, while the electric BMW iX attracts just £560.64—a difference of over £9,600 per year.

Employer NICs and Salary Sacrifice

The employer NIC rate increased from 13.8% to 15% in April 2025.

While this raises overall employment costs, it also enhances the appeal of salary sacrifice schemes. By reducing employees' gross salaries, employers can lower their NIC liabilities.

For instance, an employee sacrificing £500 per month could save the employer over £2,000 in NICs over a three-year lease.

Additional Considerations

Vehicle Excise Duty (VED):

From April 2025, EVs are subject to VED, with a first-year rate of £10 and a standard rate of £195 from the second year onwards.

Pension Contributions:

Salary sacrifice can affect pension contributions, especially in defined benefit schemes. Some employers calculate contributions based on the reduced salary, potentially lowering future pension benefits.

Eligibility Thresholds:

Employees must ensure that salary sacrifice does not reduce their earnings below the National Minimum Wage, which increased to £12.21 per hour in April 2025. ([Comcar][10])

You may also find these articles useful: 

• More than a benefit: Why EV Salary Sacrifice is more than just an employee perk 

• SME benefits: How does a small business benefit from offering EV Salary Sacrifice  

• Low uptake: Got a scheme already? ... how to understand and fix low emloyee uptake

• SME Elegibility: Can a small business offer an EV Salary Sacrifice scheme to their employees? 

In Summary

Despite the rise in BiK rates and the introduction of VED for EVs, salary sacrifice schemes continue to offer significant financial advantages for both employees and employers.

The tax savings, combined with lower running costs and environmental benefits, make these schemes a compelling option for sourcing electric vehicles. However, it's essential to consider individual circumstances, including pension implications and income thresholds, before participating.

As government policies evolve, staying informed about tax changes and consulting with financial advisors can help maximise the benefits of salary sacrifice schemes.