How a salary sacrifice car works
You agree to give up part of your salary, and your employer leases a car for you with it. Because your pay is lower, you pay less Income Tax and National Insurance. But the car counts as a benefit, so you pay tax on its value, often called car tax or benefit-in-kind. That value is the car's list price times a percentage set by the government.
On a £45,000 salary, a £500 a month electric car with a list price of £40,000 costs you about £386.67 a month from your take-home. You save £100.00 of Income Tax and £40.00 of National Insurance, and pay £26.67 of car tax.
Car tax rates for salary sacrifice cars
The percentage depends on the car's CO2 emissions, and for plug-in hybrids its electric range. The government has set the rates up to 2031.
| Car | 2026/27 | 2027/28 | 2028/29 | 2029/30 | 2030/31 |
|---|---|---|---|---|---|
| Electric | 4% | 5% | 7% | 9% | 10% |
| Plug-in hybrid, 130 miles or more | 4% | 5% | 18% | 19% | 20% |
| Plug-in hybrid, 70 to 129 miles | 7% | 8% | 18% | 19% | 20% |
| Plug-in hybrid, 40 to 69 miles | 10% | 11% | 18% | 19% | 20% |
| Plug-in hybrid, under 30 miles | 16% | 17% | 18% | 19% | 20% |
| Petrol, 120 to 124 g/km | 30% | 30% | 31% | 32% | 33% |
Look at plug-in hybrids from April 2028. Every one moves to at least 18%, whatever its range. On a £40,000 hybrid with a 45-mile range, the car tax goes from £66.67 to £120.00 a month on a £45,000 salary. If a lease would run past April 2028, check the Future years tab.
What a salary sacrifice car costs on different salaries
The more tax you pay, the more you save. Here is the same £500 a month electric car, with a £40,000 list price, in England, Wales or Northern Ireland.
| Salary | Real cost a month | Saving on £500 |
|---|---|---|
| £30,000 | £386.67 | 23% |
| £45,000 | £386.67 | 23% |
| £60,000 | £343.33 | 31% |
| £80,000 | £343.33 | 31% |
| £110,000 | £270.00 | 46% |
| £150,000 | £325.00 | 35% |
Over £100,000, the saving is bigger still. A lower salary brings back some of the personal allowance you lose above that point, so on £110,000 a £650 a month car costs about £357.00 a month.
Electric, hybrid or petrol: the 75g/km rule
Cars with CO2 emissions of 75g/km or less, which includes electric cars and most plug-in hybrids, are taxed on the normal car benefit. Above 75g/km you're taxed on the greater of the car benefit and the salary you give up, so most of the tax saving goes. A £500 a month petrol car at 120g/km costs about £572.00 a month on £45,000, more than the lease itself.
Is a salary sacrifice car worth it?
For an electric car, usually yes, if you compare like with like. Work schemes often build insurance, servicing, tyres and breakdown cover into the monthly cost, so a scheme can look dear next to a bare personal lease. Put your personal lease quote in the calculator, and add what insurance and servicing would cost you in Insurance and servicing. Check the mileage is the same on both.
Things to check before you sign
- Your pension. If your employer's contributions are a percentage of salary, a lower salary can mean less going in. Ask whether they use your full salary.
- Statutory pay and benefits. A lower salary can reduce statutory pay, such as maternity pay, and earnings-related benefits such as Maternity Allowance.
- Borrowing. Each mortgage lender decides whether to use your salary before or after the sacrifice.
- The minimum wage. A sacrifice must not take your cash pay below the minimum wage.
- Child maintenance. The other parent can ask the Child Maintenance Service to count income given up for a company car.
Salary sacrifice car questions
Does a salary sacrifice car have to be electric?
No. Any car can go through a scheme, but cars above 75g/km lose most of the tax saving, so schemes mostly offer electric cars and plug-in hybrids.
Does a salary sacrifice car affect my student loan?
It can lower your repayments. They're worked out on the same pay as National Insurance, which is your pay after the sacrifice. The car itself is charged to your employer as Class 1A National Insurance. Choose your loan plan above to include it.
What list price should I use?
Use the list price on your quote, often called the P11D value. It's the manufacturer's price for the car, including VAT and delivery, plus any extra accessories fitted when you get it. Discounts don't lower it, and the new car registration fee isn't included.
Does it work in Scotland?
Yes. Choose Scotland above to use Scottish Income Tax rates. National Insurance and the car tax percentages are the same across the UK.
Is a salary sacrifice car a company car?
For tax, yes. It's taxed under the same company car rules, so you pay car tax on it each year you have it, even though you chose it through a scheme.
Do you pay tax on a salary sacrifice car?
Yes. You pay Income Tax on the car benefit, which is the list price times the percentage for that year. On the £40,000 electric car above, that's £26.67 a month for a basic rate taxpayer. You don't pay employee National Insurance on it.
How much of my salary can I sacrifice for a car?
There's no set limit, but the sacrifice must not take your cash pay below the minimum wage. The calculator checks this using your hours and age.
Can I salary sacrifice a used car?
Yes, if your scheme offers used cars. HMRC treats them the same as new ones. Use the list price from when the car was new, not what it costs now.
What happens to a salary sacrifice car if I leave?
Your agreement decides. The car usually goes back and your full salary returns, but there can be early end charges. Before you sign, ask whether the scheme covers those if you resign, are made redundant or go on long leave.
Does a salary sacrifice car change my tax code?
It usually does for now. Most employers report a car to HMRC after the tax year on form P11D, and HMRC collects the car tax by lowering your tax code. Some employers already take it through payroll instead, so it shows on your payslip. From April 2027, all employers must payroll company cars, so the car tax will come off your pay each month. The car tax over the year comes out broadly the same either way, and the calculator shows it.
Does a salary sacrifice car affect Child Benefit?
It can. The Child Benefit charge uses your adjusted net income, which is your salary after the sacrifice plus the car benefit. On £65,000, a £500 a month electric car brings it down to £60,600, so it lowers the charge but doesn't remove it.
What does my employer gain?
They pay less National Insurance on your lower salary, but pay Class 1A National Insurance on the car. The Employer tab shows both.
Sources
Checked on 7 November 2026 against the 2026/27 tax year.
- GOV.UKCompany car benefit, the appropriate percentage (480 Appendix 2)
- GOV.UKBudget 2026 rates and allowances, company car tax
- GOV.UKHow to work out the benefit of a company car (480 Chapter 12)
- HMRC manual EIM44060cars of 75g/km or less
- GOV.UKOptional remuneration arrangements (480 Appendix 12)
- GOV.UKCompany cars, what to report and pay
- GOV.UKStudent loan repayment guidance for employers
- GOV.UKSalary sacrifice for employers
- HMRC manual EIM42770Salary sacrifice payslip information
- GOV.UKAsk for other income to be included in child maintenance
- GOV.UKMandatory reporting of benefits in kind in Real Time Information from April 2027
- GOV.UKHigh Income Child Benefit Charge
- GOV.UKAdjusted net income
- GOV.UKNational Minimum Wage and National Living Wage rates
- GOV.UKRates and thresholds for employers 2026 to 2027
- GOV.UKIncome Tax rates and allowances