In today’s world, where smart financial planning is more important than ever, salary sacrifice schemes are becoming increasingly popular. Whether you’re an employer looking to offer more value to your team, or an employee exploring ways to make your salary go further—understanding how salary sacrifice works can help you unlock a host of benefits.
In this blog, we’ll explore what salary sacrifice is, how it works, and why it’s particularly useful for things like electric vehicle leasing, pension contributions, and cycle-to-work schemes.
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What is Salary Sacrifice?
Salary sacrifice is a government-approved scheme that allows employees to exchange part of their gross salary (before tax and National Insurance) in return for non-cash benefits. These benefits are often offered at a significant cost advantage compared to buying outright or using post-tax income.
Common salary sacrifice benefits include:
– Electric vehicles (EVs)
– Pension contributions
– Cycle-to-work schemes
– Childcare vouchers (for legacy users)
– Technology bundles (in some cases)
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How Does Salary Sacrifice Work?
Let’s say you earn £40,000 per year and your employer offers an EV lease through a salary sacrifice scheme. You agree to sacrifice £5,000 of your salary per year in exchange for the EV lease.
Key Points:
– Your taxable income becomes £35,000* instead of £40,000.
– You save on both Income Tax and National Insurance Contributions (NIC).
– The EV is paid for from your gross salary, making it significantly cheaper than buying it personally.
– The car is still owned by the employer or lease provider, but you have full access to it.
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Why Is Salary Sacrifice So Popular for Electric Vehicles?
EVs are one of the most popular salary sacrifice benefits today—thanks to
– Incredible tax savings: Company EVs currently benefit from a **Benefit-in-Kind (BiK) rate of just 2% (2025/26 tax year).
– Lower running cost: EVs are cheaper to run, maintain, and fuel than petrol or diesel cars.
-Environmentally friendly: Promotes green travel and aligns with ESG goals.
– Government backing: There are incentives, grants, and favorable tax policies for zero-emission vehicles.
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Benefits for Employees
– Tax efficiency: Save 30–50% on the cost of the benefit, depending on your tax bracket.
– No upfront costs: Ideal for big-ticket items like EVs or tech bundles.
– All-inclusive packages*: EV leases often include maintenance, insurance, and roadside assistance.
– Hassle-free*: Payments are handled via payroll with no credit checks in many cases.
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Benefits for Employers
– Boost employee benefits*: Attract and retain top talent with modern perks.
– Save on National Insurance: Employers also reduce their NICs.
– Sustainability credentials: Align with green goals by encouraging EV use.
– No additional cost: Most schemes are cost-neutral to set up.
Things to Consider
While salary sacrifice schemes offer excellent benefits, it’s important to be aware of:
– Impact on take-home pay: Lower salary means lower take-home—though often offset by tax savings.
– Effect on other entitlements: A reduced gross salary may affect statutory payments (e.g., maternity pay, pension limits).
– Employment contract: The change must be documented and agreed upon formally.
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Final Thoughts
Salary sacrifice schemes are a win-win for employers and employees alike—offering financial efficiency, valuable benefits, and greener choices for the modern workforce. Whether you’re looking to drive an electric vehicle, enhance your pension, or support your team with cutting-edge benefits, salary sacrifice is a smart option to explore.
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Interested in an EV salary sacrifice scheme for your business or team?
At London EV Chargers, we help companies and employees access EVs through HMRC-compliant, cost-effective salary sacrifice schemes. Contact us today to learn how we can help you save and go green.