EV salary sacrifice: What is it and how does it save you money?

We explain what EV salary sacrifice is, how it helps company car drivers cut their tax bill, and how to calculate your savings

Motorists in 2025 have more ways to ‘own’ a car than ever before. The idea of putting down the full list price up front is almost gone, as drivers turn to hire purchase, PCP and personal leasing to finance their next car.

While PCP (personal contract purchase), hire purchase and PCH (personal contract hire) are now familiar concepts, company car drivers also have another avenue open to them – EV salary sacrifice. This take on leasing can not only bag them a new electric car at a cut price but can also save them thousands of pounds on tax and ownership costs.

What is EV salary sacrifice?

Salary sacrifice may seem one of those nebulous business terms, but it need not be. In simplified terms, salary sacrifice is a way in which you as an employee can make savings by paying things directly from your salary before tax. For example, you can give up part of your salary and direct it towards something like a pension, childcare, or in our case, leasing an electric vehicle.

Salary sacrifice is also tax deductable. This means that if your employer offers it, then it will lower your income tax liability and reduce your National Insurance contributions. Furthermore, you won’t need to claim any tax relief from HMRC, as the savings are made immediately.

Let’s look into how salary sacrifice can benefit you as you seek to make the switch from diesel or petrol to electric motoring.

How does it benefit you?

If your workplace offers an EV salary sacrifice scheme and you choose to take them up on it, you will pay for the car’s monthly leasing cost with a portion of your gross salary. A smaller gross salary translates to smaller taxable earnings, and paying less income tax and National Insurance.

Thom Groot, CEO of leading salary sacrifice provider, The Electric Car Scheme, explains how the savings work: “A driver in the 20% tax bracket using salary sacrifice for an electric car will save 20% on the cost of the lease through the scheme as a result of income tax savings, and a further 8% through National Insurance savings,” he said. “They will, however, be responsible for benefit-in-kind tax, currently at 2% in 2025, and going up by 1% a year until 2028.”

 

As well as saving you money on tax and National Insurance, you can also save substantially on the price of a brand new EV, which starts on average around £46,000. Some packages such as The Electric Car Scheme and Octopus EV salary sacrifice include servicing, maintenance and repairs, breakdown cover, and fully comprehensive insurance as standard.

If you opt for the Octopus scheme – and you don’t have to, there are plenty of others – it also includes a choice of either a free Ohme ePod home charger worth £899, or 4,000 free miles of public charging credit worth around £600.

How much can I save through EV salary sacrifice?

According to Thom Groot, leasing an MG4 for three years with a £35,000 salary on the 20% tax bracket will reduce your take home pay by £395 a month through a regular lease.

Through salary sacrifice, you will save £79 a month on tax and £32 a month on national insurance. Benefit-in-kind tax will cost an average of £17 a month. You will therefore pay just £301 a month – a saving of £94 or 24%. Over the term of the lease, you will save £3,384.

For a driver earning £55,000 and in the 40% tax bracket, leasing the same car will reduce your take home pay by £395 a month before savings. Through salary sacrifice, you will save £158 a month on tax and £8 a month on national insurance. Benefit-in-kind tax will cost an average of £34 a month. You will therefore pay just £263 a month – a saving of £132 or 33%. Over the term of the lease, you will save £4,752.

As mentioned above, on top of the tax savings, most EV salary sacrifice schemes bundle other services into their deals, bringing further savings. According to Groot, leasing a Polestar 2 through the Electric Car Scheme could save a 40% tax payer £1,121 per year over a three-year lease, with an additional savings of more than £1,000 in annual ownership costs.

Running an all-electric car can also be significantly more wallet friendly than running one with an internal combustion engine (ICE). In 2024, it cost an average of 7p per mile to charge an EV at home, and 17p/mile to use a public rapid/ultra fast charger. According to the Department for Transport, fuel prices are set to rise again to 18p/mile this year. Based on average vehicles, Zapmap estimates that it costs on average £660 annually to run an EV using a home charger. The equivalent ICE would set you back £1,430. To figure out how much you could save on fuel costs, you can use ZapMap’s charging calculator.

You can work out exactly how much you’ll save using EV salary sacrifice calculators. You can find Octopus’s here, or The Electric Car Scheme’s here.

There are also environmental benefit to running an EV. An all-electric car produces zero tailpipe emissions, and will be responsible for anything from 17% to 30% less carbon dioxide emissions than an ICE over the course of its lifetime, from manufacture to end-of-life scrapping.

Popular EVs available on salary sacrifice

The UK is the European leader of EV sales at the moment with over 381,970 sold in 2024. As such, there’s no shortage of models on the market to cater to all tastes and budgets. Chinese models such as the BYD Dolphin and Atto 3 come in at the lower end of the pricing scale, starting at £26,140 and £37,140 respectively. Other popular all-electric amongst salary sacrifice buyers in the UK are the Polestar 2, and the Volvo EX30. The Polestar 2 starts at £42,950, while pricing for the most sustainable Volvo ever starts at £32,850.

BMW has made leaps and bounds with its EVs in recent years. In 2024, it was the biggest selling premium EV brand in the UK with the i4 and iX1 its most popular all-electric models. The i4 begins at £51,270 and iX1 prices begin at £46,205.

Who is elegible and how much can be sacrificed?

According to HMRC, salary sacrifice is available to all employees as long as it doesn’t reduce their salary to below minimum wage. Since April 2024, this is £11.44 per hour for employees over the age of 23, and is known as National Minimum Wage. As of April 2025, the National Minimum Wage will increase by 6.7% to £12.21 hourly.

There is no limit on how much of your salary you can sacrifice. However, you cannot reduce your pay beyond the National Minimum Wage. If you are interested in taking part in an EV salary sacrifice programme, we suggest discussing how much of your salary you can contribute to it with your employer.