How does salary sacrifice for electric cars work?
Answered 17 March 2026
Salary Sacrifice for Electric Cars
What the law says
The basic mechanism: Salary sacrifice occurs when an employee gives up the right to part of their cash pay in return for a non-cash benefit from their employer. The sacrifice is achieved by varying the employee's terms and conditions of employment relating to pay. If effective, the employee is taxed on the lower cash salary plus the cash equivalent of the benefit in kind.
The key advantage — exclusion from Optional Remuneration Arrangement (OpRA) rules: From 6 April 2017, the Income Tax and NICs advantages of salary sacrifice were largely withdrawn under the "optional remuneration arrangements" (OpRA) rules introduced by Finance Act 2017. However, ultra-low emission cars (ULEVs) — those with CO₂ emissions of 75g/km or less — are specifically excluded from these rules. This means:
"The optional remuneration arrangement rules do not apply to cars with CO2 emissions of 75 grams or less per kilometre. Cars with CO2 emissions of 75 grams or less per kilometre continue to be taxed on the cash equivalent of the benefit without having to make a comparison with the salary foregone."
For ordinary (non-ULEV) cars provided via salary sacrifice, the OpRA rules apply and the taxable amount is the higher of the salary foregone or the normal benefit-in-kind cash equivalent.
Benefit-in-kind rates for electric/low-emission cars: The appropriate percentage used to calculate the taxable benefit is set by s.139 ITEPA 2003. For a fully electric car (CO₂ = 0), the rate is 2% of list price (rising to 3% in 2025-26 and 4% in 2026-27). For plug-in hybrids (CO₂ 1–50g/km), the rate depends on the car's electric range.
HMRC guidance / practice
How the tax saving works in practice: Because ULEVs are excluded from the OpRA rules, the employee is taxed only on the (very low) benefit-in-kind cash equivalent — not on the (typically higher) amount of salary foregone. HMRC illustrates this as follows:
"An employee is provided with a low emission car... under an optional remuneration arrangement in which the employee gives up £125 per month (the amount forgone). The car has CO2 emissions of 70 grams per kilometre. The car has a list price of £11,500 and a cash equivalent value of £1,495 (£11,500 × 13%). Although the £1,500 (£125 x 12) which is the amount foregone by the employee exceeds the cash equivalent value of the benefit of the car, the optional remuneration arrangement rules do not apply to low emission cars. The relevant amount to treat as earnings remains at £1,495."
Ultra-low emission cars are an "excluded benefit": HMRC guidance confirms that ULEVs are not affected by the post-April 2017 OpRA rules and continue to be included in salary sacrifice schemes on the same favourable basis as before.
NIC treatment: Because the employee's gross cash salary is reduced, both the employee and employer pay NICs on the lower salary figure. The benefit-in-kind (the car) attracts Class 1A NICs from the employer (based on the low BIK cash equivalent), but no Class 1 NICs from the employee — this is a significant part of the financial incentive for both parties.
HMRC's role: HMRC will not advise on whether to set up a salary sacrifice arrangement or whether an employee should join one — that is a matter between employer and employee.
Summary
| Feature | Electric/ULEV (≤75g/km CO₂) | Standard car (>75g/km CO₂) |
|---|---|---|
| OpRA rules apply? | No — excluded | Yes |
| Taxable BIK basis | Normal BIK cash equivalent only | Higher of salary foregone or BIK |
| BIK rate (pure electric, 2024-25) | 2% of list price | Standard rates (up to 37%) |
| NIC on sacrificed salary | Not charged | Not charged |
Citation sources
An employee is provided with a low emission car which is available for their private use under an optional remuneration arrangement in which the employee gives up £125 per month (the amount forgone). The car has CO2 emissions of 70 grams per kilometre. The car has a list price of £11,500 and a cash equivalent value of £1,495 (£11,500 × 13%). Although the £1,500 (£125 x 12) which is the amount foregone by the employee exceeds the cash equivalent value of the benefit of the car, the optional remun
From 6 April 2017, the Income Tax and NICs advantages where benefits in kind are provided through salary sacrifice arrangements (described in the Finance Act 2017 as “optional remuneration arrangements”) are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000. Transitional provisions apply for a limited period. For further details see EIM44030. Certain benefits in kind are excluded from the changes. For further details see EIM44130. For an expla
PART 1 Direct taxes Income tax: employment and pensions Taxable benefits: ultra-low emission vehicles 2 1 ITEPA 2003 is amended as follows. 2 In section 139 (car with a CO 2 emissions figure: the appropriate percentage), for subsections (1) to (6) substitute— 1 The appropriate percentage for a year for a car with a CO 2 emissions figure of less than 75 is determined in accordance with the following table. Car Appropriate percentage Car with CO 2 emissions figure of 0 2% Car with CO 2 emissions f
From 6 April 2017, the Income Tax and NICs advantages where benefits in kind are provided through salary sacrifice arrangements (described in the Finance Act 2017 as “optional remuneration arrangements”) are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000. Transitional provisions apply for a limited period. For further details see EIM44030. Certain benefits in kind are excluded from the changes. For further details see EIM44130. For an expla
Salary sacrifice happens when an employee requests not to receive part of their pay due to them, in return for the employer’s agreement to provide the employee with some form of non-cash benefit. The ‘sacrifice’ is achieved by varying the employee’s terms and conditions of employment relating to pay. Note: You mustn’t comment on how to set up a salary sacrifice arrangement or whether the customer should join a salary sacrifice scheme. For further information on how to deal with salary sacrifice,
From 6 April 2017, the Income Tax and NICs advantages where benefits in kind are provided through salary sacrifice arrangements (described in the legislation as ‘optional remuneration arrangements’) are largely withdrawn. For most benefits in kind which were subject to either a full exemption or a limited exemption, the exemption does not apply if the benefit is provided in conjunction with a salary sacrifice arrangement. The earnings charge on the benefit in kind is based on the amount of salar
Check if the salary sacrifice scheme is for any of the following Note: The following are not affected by the new rules and will continue to be included in the salary sacrifice scheme. childcare vouchers or a nursery place paid for by the employer pension provision pension advice cycle to work scheme (the provision of a cycle and safety equipment) ultra-low emission cars If the salary sacrifice scheme is one of the above, go to Step 9 If the salary sacrifice scheme is not one of the above, follow
From 6 April 2017, the Income Tax and NICs advantages where benefits are provided through arrangements in which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000. Transitional provisions apply for a limited period. For further details see EIM44030. Certain benefits in kind are excluded from the changes. For further details see EIM44130. The optional remunerati