Company Cars vs Salary Sacrifice EVs , Side-by-Side BIK Maths
- Atlas Tax
- 3 days ago
- 11 min read
Updated: 11 hours ago
Company Cars vs Salary Sacrifice EVs: Side-by-Side BIK Maths in the UK
For the 2026/27 tax year, a fully electric vehicle provided as a company car attracts a Benefit in Kind (BIK) appropriate percentage of 4%, confirmed by HMRC through to 2029/30. A comparable petrol or diesel company car with emissions above 160g/km attracts 37% or more. That gap drives the entire calculation, and it applies whether the car is provided conventionally or through a salary sacrifice arrangement.
How Company Car BIK Tax Is Calculated in 2026/27
The BIK charge on any company car is calculated as: P11D value multiplied by the appropriate percentage, multiplied by the employee's marginal income tax rate. The result is the annual income tax cost to the employee. The employer separately pays Class 1A National Insurance Contributions (NIC) at 15% on the same BIK value, as confirmed by HMRC's guidance on reporting and paying expenses and benefits.
The P11D value is the manufacturer's original list price including factory options and VAT, but excluding the first-year registration fee and road tax. Critically, it does not decrease as the car ages. A car on its fourth year still uses the same P11D figure as in year one, which is an important consideration when planning a three or four-year lease.
For a fully zero-emission electric vehicle in 2026/27, the appropriate percentage is 4%. This rose from 3% in 2025/26 and will increase to 5% in 2027/28, 7% in 2028/29, and cap at 9% in 2029/30, as set out in HMRC's company car tax rates guidance. These confirmed forward rates give genuine planning certainty for anyone committing to a three or four-year lease today.
The BIK Maths on a Real EV vs a Petrol Car
Take a Hyundai Ioniq 6 with a P11D value of £44,000, and a comparable BMW 3 Series petrol saloon with a P11D value of £45,000 and CO2 emissions of 130g/km, placing it in the 31% BIK band for 2026/27.
Hyundai Ioniq 6 (EV, 4% BIK): BIK value: £44,000 × 4% = £1,760 per year. Income tax for a 40% taxpayer: £704 per year (£58.67 per month). Income tax for a 20% taxpayer: £352 per year (£29.33 per month). Employer Class 1A NIC: £1,760 × 15% = £264 per year.
BMW 3 Series petrol (31% BIK): BIK value: £45,000 × 31% = £13,950 per year. Income tax for a 40% taxpayer: £5,580 per year (£465 per month). Income tax for a 20% taxpayer: £2,790 per year (£232.50 per month). Employer Class 1A NIC: £13,950 × 15% = £2,092.50 per year.
The higher-rate taxpayer driving the Ioniq 6 pays £4,876 less income tax per year than they would in the BMW. The employer saves £1,828.50 per year in Class 1A NIC. Both savings are significant, and they compound across the lease term.
For Scottish taxpayers, the equivalent higher-rate band is 42% (compared to 40% in England and Wales). This makes EV BIK even more valuable north of the border: the same Ioniq 6 costs a Scottish higher-rate taxpayer £739.20 per year (£61.60 per month) in BIK tax, while the BMW would cost £5,859 per year.
What Salary Sacrifice Does to the Calculation
A salary sacrifice car scheme is one where the employee gives up a portion of their gross salary in exchange for use of a company car. The key distinction for tax purposes is that HMRC's Optional Remuneration Arrangements (OpRA) rules, introduced in April 2017, generally require that where salary is sacrificed for a benefit, the BIK is calculated on the higher of the cash forgone or the standard BIK value.
That rule would normally make salary sacrifice less attractive than a conventional company car arrangement. However, there is a specific exemption for ultra-low emission vehicles (ULEVs). Under the OpRA exemption, pure electric vehicles and vehicles emitting no more than 75g/km of CO2 are excluded from the OpRA rules, meaning the BIK is calculated using the standard P11D value and appropriate percentage regardless of how much salary is sacrificed. The full detail is in HMRC's salary sacrifice for employers guidance.
This exemption is what makes salary sacrifice EVs particularly powerful. An employee sacrificing £700 per month to access the Ioniq 6 through salary sacrifice is not taxed on that £700 as if it were still salary. They pay BIK tax on the standard 4% charge instead.
Company Cars vs Salary Sacrifice EVs Side-by-Side BIK Maths
Vehicle Type | 2026/27 BIK Rate | Monthly Tax Cost (Higher Rate 40%) | Employer National Insurance Savings |
Pure Electric Vehicle (EV) | 3% - 4% | £40.00 - £61.00 (Based on £30,000 - £42,000 list price) | Significant; typically 13.8% - 15% of sacrificed salary; often offsets provider fees. |
Plug-in Hybrid (PHEV) | 4% - 19% (Depends on zero-emission range) | £53.33 - £350.00 (Range based on electric mileage and list price) | Moderate to high; typically 13.8% - 15% of sacrificed salary; exempt from OpRA rules. |
Traditional Petrol / Diesel | 21% - 37% (Maximum rate) | £150.00 - £600.00 (Significant increase over EVs/PHEVs) | Minimal to none; high Class 1A NIC liability often offsets any potential sacrifice savings. |
Salary Sacrifice EV: Full Numbers for a Higher-Rate Taxpayer
Employee gross salary before sacrifice: £65,000. Monthly salary sacrifice (lease cost plus maintenance package): £700 per month / £8,400 per year. Revised gross salary: £65,000 - £8,400 = £56,600.
Income tax saving from lower gross salary: £8,400 × 40% = £3,360 per year. Employee NIC saving: The Primary Threshold for employee NIC in 2026/27 is £12,570. At £65,000, the employee is above the Upper Earnings Limit (UEL) of £50,270 and pays NIC at 2% on earnings above the UEL. So the NIC saving on the £8,400 sacrifice above £50,270 is: £8,400 × 2% = £168 per year.
BIK tax cost: £44,000 × 4% × 40% = £704 per year.
Net annual saving versus leasing the car personally (assuming the same £8,400 cost from net pay): Before sacrifice, to fund £8,400 from post-tax, post-NIC income, a 40% taxpayer with income above the UEL needs approximately £14,063 of gross pay (because £14,063 after 40% IT and 2% NIC = £8,400 approximately). The total annual benefit of salary sacrifice over personal leasing is therefore roughly £14,063 - £8,400 - £704 = approximately £4,959 per year.
That is a significant sum, and it explains why salary sacrifice EV schemes have expanded rapidly. At a basic rate, the analysis is less dramatic but still clearly favourable.
The employer saves employer NIC on the salary forgone. At 15% employer NIC on £8,400, that represents £1,260 per year of NIC saving per participating employee, though the employer still pays Class 1A NIC of £264 on the BIK value. Many employers use part of this saving to fund administration costs or to subsidise the lease rate for employees.
Where the Two Routes Diverge on the Employer Side
For a conventional company car, the employer either buys or leases the vehicle. Capital allowances apply on a purchase: a new, unused zero-emission car qualifies for 100% First Year Allowance (FYA) under current HMRC rules, generating immediate Corporation Tax relief. A lease typically creates a straightforward rental expense deduction, though the 15% disallowance rule can apply to leased cars with CO2 emissions above 50g/km. This is less of a concern for pure EVs, but worth checking for any hybrid options.
Under a salary sacrifice scheme, the employer (or more commonly a specialist scheme provider) leases the vehicle, and the lease cost is structured as the amount the employee gives up. The employer's accounting treatment depends on whether the arrangement is a finance or operating lease, but for most fully maintained salary sacrifice schemes run through third-party providers, the costs flow through payroll and are broadly deductible.
One practical difference worth flagging: under a salary sacrifice scheme, the employee does not own or control the vehicle in the same way as someone whose employer simply provides a company car. The employee cannot usually terminate the lease early without financial penalty. This is a genuine risk for anyone in a role with uncertain tenure, and several salary sacrifice providers now offer redundancy or life-change protection clauses to mitigate it.
The P11D Filing: What Changes and What Does Not
Whether the car is provided conventionally or through salary sacrifice, the employer must report the BIK on form P11D annually. HMRC uses the P11D information to issue revised tax codes, collecting the BIK income tax through PAYE adjustments. The employee does not need to separately declare the BIK on a Self Assessment return unless they are required to file one for other reasons.
Employers with large numbers of company car drivers should be aware that HMRC's P11D reporting deadline is 6 July following the end of the tax year, with Class 1A NIC due by 22 July (19 July if paying by cheque). Late P11D submissions attract penalties, and HMRC has been more active in pursuing these in recent years.
A commonly missed issue is the failure to update HMRC when a car changes during the year. If an employee switches vehicles mid-year, receives a car after the start of the tax year, or returns one before the year end, the P11D must reflect the partial-year position accurately. Using HMRC's online tool, available through the calculate your vehicle's tax rates service on GOV.UK, can help verify the figures before filing.
Confirmed Future Rates: Planning for a Lease Starting Now
The BIK rate roadmap for zero-emission vehicles, confirmed through to 2029/30, means a lease starting in 2026/27 will operate across at least two rate changes before it typically expires.
Tax Year | EV BIK Rate |
2026/27 | 4% |
2027/28 | 5% |
2028/29 | 7% |
2029/30 | 9% |
A three-year lease starting in 2026/27 covers the first two increases. The employee's BIK cost rises modestly each year, but remains a fraction of equivalent petrol or diesel rates. For planning purposes, a four-year lease on the Ioniq 6 example above would cost the higher-rate taxpayer £704 in 2026/27, £880 in 2027/28, £1,232 in 2028/29, and £1,584 in 2029/30 in annual BIK tax. The cumulative four-year cost is approximately £4,400. The equivalent cumulative cost for the 31% petrol car (assuming rates remain broadly stable, which they will not in the driver's favour) would be approximately £22,320.
Petrol and diesel appropriate percentages will continue rising by 1% per year in 2028/29 and 2029/30 for most emission bands, further widening the gap.
Key Takeaways
The BIK appropriate percentage for a zero-emission company car in 2026/27 is 4%, confirmed by HMRC to rise to 5% in 2027/28, 7% in 2028/29, and cap at 9% in 2029/30. Petrol and diesel cars sit at 25-37% or higher for the same period.
A salary sacrifice EV avoids the OpRA rules because ultra-low emission vehicles are exempt. The BIK is calculated on the standard P11D value at 4%, not on the higher of the cash forgone or the BIK value, which applies to most other salary sacrifice benefits.
For a higher-rate taxpayer, salary sacrifice of an EV can produce annual net savings of £4,000 to £6,000 compared with leasing the same car personally, depending on the lease cost, income level, and NIC position. Basic rate taxpayers benefit proportionately but typically less dramatically.
Employers save Class 1A NIC at 15% on the BIK value, which for an EV is substantially lower than for a petrol or diesel car. They also save employer NIC at 15% on the salary sacrificed, subject to normal payroll mechanics.
The P11D must be filed by 6 July after the tax year end. Class 1A NIC is due by 22 July.
Scottish taxpayers pay the Scottish higher rate of 42% on income above £43,662 for 2026/27, making the EV BIK saving proportionately greater than for equivalent earners in England and Wales.
Frequently Asked Questions (FAQs)
What is the BIK rate for an electric company car in 2026/27?
The BIK appropriate percentage for a zero-emission electric company car is 4% for the 2026/27 tax year. This applies to the car's P11D value (the original list price including options and VAT) to calculate the taxable benefit. The rate rises to 5% in 2027/28.
Does a salary sacrifice EV get the same low BIK rate as a regular company car? Y
es. Ultra-low emission vehicles, including pure electric cars, are exempt from the Optional Remuneration Arrangements rules. This means the BIK is calculated at the standard 4% appropriate percentage regardless of how much salary is sacrificed, rather than on the higher of the cash forgone or the BIK value that applies to most other salary sacrifice benefits.
Does my employer pay tax on my EV company car?
Your employer pays Class 1A National Insurance Contributions at 15% on the BIK value of the car. For a zero-emission car with a P11D of £44,000 at 4% BIK, the annual Class 1A NIC cost to the employer is £264 per year. For a petrol car with 31% BIK on the same value, the employer's Class 1A NIC would be £2,046 per year.
Does the P11D value go down as the car gets older?
No. The P11D value is fixed at the car's original list price when new and does not reduce as the vehicle ages. A five-year-old company car still uses the same P11D figure from when it was first registered. This is why the choice of vehicle and P11D value at the start of a lease matters so much.
What are the confirmed EV company car BIK rates through to 2030?
HMRC has confirmed the following rates for zero-emission electric vehicles: 4% in 2026/27, 5% in 2027/28, 7% in 2028/29, and 9% in 2029/30. Even at 9%, the EV rate will be less than a quarter of the typical BIK rate for a petrol or diesel car.
What is the difference between a company car and a salary sacrifice car for tax purposes?
Both are treated as company cars by HMRC and are subject to BIK tax calculated in the same way. The difference is funding: a conventional company car is provided by the employer without reducing the employee's salary, whereas a salary sacrifice scheme reduces the employee's gross pay in exchange for use of the vehicle. For EVs, the tax outcome is very similar because of the OpRA exemption.
Do I pay National Insurance on my company car BIK?
Employees do not pay National Insurance on BIK. Only income tax applies to the employee on the BIK value. The employer, however, does pay Class 1A NIC at 15% on the BIK figure, and this is reported and paid separately from payroll NIC.
What happens if I give back the EV mid-lease through salary sacrifice?
Early termination of a salary sacrifice car lease typically involves a financial penalty, which is usually the employee's liability and can be substantial. Most specialist salary sacrifice providers include protection clauses for redundancy, long-term illness, or parental leave. The terms vary between providers, so this is worth checking before committing to a scheme.
How does being a Scottish taxpayer change the EV company car maths?
Scottish taxpayers pay income tax at the Scottish higher rate of 42% on income above £43,662 in 2026/27, compared with the 40% rate in England and Wales. This means BIK tax on a company car costs slightly more in Scotland at higher income levels, but it also means the saving versus a petrol car is proportionately greater. On a £44,000 EV at 4% BIK, a Scottish higher-rate taxpayer pays £739.20 per year in BIK tax.
Disclaimer
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