Salary sacrifice EV basics for CFOs

Updated August 2026 for the 2026/27 tax year.

Why the economics deserve scrutiny

Electric car salary sacrifice can be an attractive employee benefit because the employee gives up gross cash salary and normally saves Income Tax and employee National Insurance on that amount. A fully electric company car is then taxed as a benefit in kind.

For 2026/27, the fully electric company car BIK rate is 4%. That percentage is applied to the car's P11D value to produce the annual taxable benefit. The employee's actual tax cost depends on the Income Tax bands that the benefit falls into, not simply one headline rate.

Use our salary sacrifice car calculator UK to sense-check an employee illustration using 2026/27 bands, employee NI, tax code and the 4% BIK rate.

The core financial mechanics

A CFO model should separate:

• the employee's gross salary reduction
• employee Income Tax and National Insurance savings
• employee BIK tax on the P11D value
• employer secondary National Insurance saved on salary
• employer Class 1A National Insurance due on the taxable car benefit
• lease, insurance, servicing and early termination costs
• any employer contribution or reinvestment of savings

The employee calculation and employer business case are related, but they are not the same calculation. Our employer NI savings calculator isolates the employer-side effect.

What a CFO should challenge

Test assumptions across representative salary, vehicle and mileage bands. Pay particular attention to employees near the £100,000 Personal Allowance taper, Scottish taxpayers, variable pay, pensionable pay and National Minimum Wage limits.

The commercial review should also cover contract length, residual value assumptions, vehicle discounts, insurance, early termination protection, payroll controls, reconciliation and the allocation of risk between employer and provider.

Decision point

A favourable calculator result is not enough to approve a programme. Finance, Reward, HR, payroll, tax and risk owners should agree the operating model and validate provider terms before launch or renewal.