Published: June 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)
This guide is fully updated for the 2026/27 HMRC tax year. All calculations and tax rules have been audited against official UK legislation.
Salary sacrifice is one of the most effective tax planning tools available to employees in the UK. While most people associate salary sacrifice with pension contributions, it can also be used to acquire non-cash benefits in an extremely tax-efficient manner. In recent years, schemes for electric cars, cycles, and technology have surged in popularity. In this guide, we explain how non-pension salary sacrifice schemes work, calculate the tax benefits of electric company cars, and explain the rules for the 2026/27 tax year.
How Does Salary Sacrifice Work?
A salary sacrifice agreement is a legally binding change to your employment contract. You agree to **give up a portion of your cash salary** in return for your employer providing a **non-cash benefit**. Because you are sacrificing cash before it is paid to you, you do not pay Income Tax or National Insurance on the sacrificed amount, representing an instant saving of up to 42% or 47%.
The Electric Car Advantage: Benefit-in-Kind (BiK)
Under HMRC rules, most company benefits attract a tax charge known as Benefit-in-Kind (BiK). In the past, high BiK rates made company cars tax-inefficient. However, the government has set exceptionally low BiK rates for zero-emission electric vehicles (EVs) to encourage adoption. For the 2026/27 tax year, the BiK rate for fully electric cars is **3%** (rising to 4% in 2027/28 and 5% in 2028/29). This makes electric car salary sacrifice highly lucrative compared to leasing a car privately using your post-tax salary.
Salary Sacrifice Benefits Compared (2026/27)
The table below summarizes the tax and NI treatments of the most popular salary sacrifice benefits:
| Scheme Benefit | Tax Treatment | National Insurance Treatment | Benefit-in-Kind (BiK) Rate |
|---|---|---|---|
| Workplace Pension | 100% Tax-Free | 100% NI-Free (saves 2% to 8%) | Exempt (No BiK) |
| Electric Car (EV) | Sacrificed amount is tax-free | Sacrificed amount is NI-free | 3% BiK rate (taxed on car list value) |
| Cycle to Work Scheme | 100% Tax-Free | 100% NI-Free | Exempt (No BiK) |
| Tech/Gym Schemes | Subject to standard income tax | Subject to National Insurance | Calculated as cash equivalent |
Real World EV Savings Calculation
Consider an employee in the 40% tax bracket sacrificing **£500 per month** of gross salary for a fully electric car with a list value (P11D) of £40,000. The gross salary reduction reduces their income tax by £200 and National Insurance by £10 (2%), making the net cost of the lease £290. The Benefit-in-Kind tax they pay is calculated as 3% of £40,000 (£1,200 value) taxed at their 40% bracket, which equals £480 per year, or £40 per month. Adding this BiK tax to the net lease cost, their total out-of-pocket cost is **£330 per month** to drive a brand new £40,000 electric car, saving them £170 every single month compared to a private hire contract.
To simulate how a salary sacrifice scheme will impact your net take-home pay and calculate your tax savings, use our Salary Sacrifice Calculator.
What People Search For: FAQs on Non-Pension Salary Sacrifice
1. What non-pension benefits can be salary sacrificed?
You can salary sacrifice for electric company cars, cycle-to-work schemes (bicycles and safety equipment), ultra-low emission vehicles (under 75g/km CO2), and childcare vouchers (if joined before October 2018).
2. How does an electric car salary sacrifice scheme save tax?
By sacrificing gross salary for an electric car, you reduce your taxable income, saving income tax and NI on the monthly payments. You only pay a small Benefit-in-Kind (BiK) tax based on the car’s list value.
3. What is Benefit-in-Kind (BiK) tax?
Benefit-in-Kind (BiK) tax is a tax on employees who receive perks or benefits from their employer in addition to their cash salary. The tax is calculated by applying your income tax bracket to the taxable value of the benefit.
4. What are the BiK rates for electric cars in 2026/27?
For the 2026/27 tax year, the BiK rate for electric cars is 3% of the car’s manufacturer list price (P11D value). This rate is scheduled to rise to 4% in 2027/28 and 5% in 2028/29.
5. Does salary sacrifice reduce my pension contributions?
It can if your employer calculates pension contributions based on your “actual” (sacrificed) salary. However, many employers use a “reference salary” (your pre-sacrifice wage) to ensure your pension contributions are unaffected.
6. Can salary sacrifice affect my mortgage borrowing?
Yes, it can. Because salary sacrifice reduces your gross salary on paper, some lenders may calculate your borrowing limit based on your lower post-sacrifice salary. However, most lenders will accept your pre-sacrifice reference salary if documented.
7. Is there a limit on cycle to work schemes?
Historically, there was a £1,000 limit, but the government removed this cap for FCA-authorized employers, allowing workers to salary sacrifice for high-quality electric bikes and specialized cycling gear.
8. What happens to a company car if I leave my job?
If you leave your employment, you must return the company car to your employer. Some schemes include early termination insurance to protect against fees, while others may require you to pay a penalty for exiting early.
9. Are electric company car charging costs tax-free?
Yes. If your employer pays for charging your electric company car at the workplace, or provides a home charging unit, it is completely tax-free and does not attract any Benefit-in-Kind tax charge.
10. Does salary sacrifice save National Insurance?
Yes. Unlike standard pension contributions where only Income Tax is saved, salary sacrifice pension and EV contributions save both Income Tax and National Insurance (saving an extra 2% to 8% depending on your earnings).