Electric Vehicles and Salary Sacrifice: How BrightPay Helps Employers Set Up a Compliant, Tax-Efficient Scheme

The Benefit in Kind (BiK) rate for pure electric company cars is 4% for 2026/27 — rising to 5% in 2027/28, 7% in 2028/29 and a capped 9% by 2029/30. Combined with salary sacrifice, this makes an electric vehicle one of the most tax-efficient benefits an employer can offer: employees save on the real cost of an EV, and employers save National Insurance Contributions on the sacrificed salary.

BrightPay is built to handle the payroll administration correctly.

This blog is part of our series on Payroll Compliance 2026/27: Payrolling Benefits, Rates & Rules.

Few employee benefits have attracted as much commercial interest in recent years as electric vehicle salary sacrifice. The combination of a very low Benefit in Kind rate — deliberately set to encourage EV adoption — with the NIC and income tax savings from salary sacrifice creates a genuine financial incentive for both employees and employers.

For payroll bureaus, the demand from employer clients to set up and administer EV salary sacrifice schemes is increasing. Getting the payroll treatment right — calculating the BiK charge accurately, deducting the correct salary sacrifice amount, ensuring the P11D or payrolled benefit is reported correctly — requires understanding how the scheme works and how the payroll system handles it.

How EV Salary Sacrifice Works

In an EV salary sacrifice scheme, an employee agrees to give up a portion of their gross salary in exchange for the use of an electric vehicle provided by the employer. The employer leases the vehicle and provides it to the employee as a company car benefit. The employee’s salary is reduced by the monthly lease cost, and the employer pays for the car from that reduction.

Because the salary reduction is made before income tax and NIC, both the employee and the employer pay less. The Benefit in Kind charge on the electric car is the mechanism by which the employee is taxed on the value of the benefit they receive. At 4% of the car’s list price (including accessories) for 2026/27, the BiK charge is very low compared to petrol or diesel vehicles, where BiK rates range from 25% to over 37% depending on emissions. For an EV with a list price of £40,000, the annual BiK value is £1,600 — producing an income tax charge of £320 for a basic rate taxpayer, or £640 for a higher rate taxpayer.

The Employer NIC Saving

For employers, the NIC saving from salary sacrifice is the primary financial benefit. Employer NIC at 15% applies to the sacrificed salary amount. For an employer with 20 employees each sacrificing £500 per month, the annual NIC saving is approximately £18,000.

Importantly, the minimum wage interaction must be checked for all salary sacrifice schemes. Post-sacrifice pay must remain at or above the relevant National Minimum Wage rate — a requirement that limits the availability of EV salary sacrifice to employees earning sufficiently above the NMW floor.

The employer must also ensure that the contract of employment is appropriately amended for the duration of the salary sacrifice arrangement, and that the arrangement is properly documented.

The BiK Rate Roadmap to 2030

One of the most commercially useful features of the current EV BiK regime is the certainty it provides. HMRC has published the BiK rates for pure electric cars through to 2029/30:

• 2026/27: 4%

• 2027/28: 5%

• 2028/29: 7%

• 2029/30: 9%

This predictable, staged increase — one percentage point in 2027/28, then two points in each of the following two years — allows employees and employers to model the cost of the scheme over the car’s lease period with confidence.

Looking for further information on legislation? Check out our blogs on The £10,500 Employment Allowance Is Now Open to All Employers: How BrightPay Ensures Every Eligible Client Claims It, Student Loan Plan 5 Starts April 2026: How BrightPay Keeps Every Deduction Correct, and Statutory Pay Rates 2026/27: How BrightPay Keeps Every SSP, SMP and SPP Calculation Correct.

How BrightPay Handles the Payroll Side of an EV Scheme

BrightPay doesn’t have a single dedicated ‘EV salary sacrifice’ feature as such — it handles the arrangement using two separate, standard payroll capabilities: a general salary sacrifice deduction, and company car Benefit in Kind processing. Used together, they cover the payroll side of a car scheme. The key payroll functions are:

Salary sacrifice deduction. BrightPay includes a standard ‘Salary Sacrifice’ deduction type (documented primarily for pension auto-enrolment use, but usable for any salary sacrifice purpose) which applies the reduction to the employee’s gross pay each period — before the calculation of income tax and NIC.

NMW check. Post-sacrifice pay must be checked against the applicable NMW rate for the employee’s age band. This is a manual check, not an automatic one — BrightPay does not flag NMW breaches from salary sacrifice in real time — so bureaus should review this at scheme setup and again at every subsequent pay rise or NMW rate change.

BiK reporting. The electric car BiK can be processed either via the traditional P11D route at year end or through payrolling of benefits, where the BiK value is added to the employee’s taxable pay each period and PAYE collected in real time. BrightPay supports both approaches, selected per employer or per employee. Payrolled benefits will be mandatory for most benefits in kind — including car benefits — from April 2027, having been delayed a year from the originally planned April 2026 start date.

RTI submissions. Standard payroll deductions and payrolled benefit values are reflected in the Real Time Information Full Payment Submission as a matter of course, ensuring HMRC has accurate data for each employee throughout the year.

What Practices Should Advise Employer Clients

For employers considering an EV salary sacrifice scheme for the first time, the advice from their accountant or payroll bureau should cover: the NMW check for all participating employees; the employment contract amendment requirement; the choice between P11D and payrolled benefits reporting; the fleet management and insurance implications; and whether the employer wants to restrict the scheme to certain vehicle types or price bands.

For bureaus already running payrolls for clients with EV schemes, a review of whether the BiK is being processed through payrolled benefits or P11D — and whether the employer has registered for payrolled benefits with HMRC — is the immediate compliance check.

Frequently Asked Questions

This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.