As the new financial year begins, many employers may be wondering whether electric vehicle (EV) salary sacrifice schemes still offer good value. Despite new tax changes coming into force from April 2025, I believe these schemes continue to be one of the most effective ways for businesses to manage costs while supporting broader ESG and carbon reduction objectives.
Tax changes are coming, but the benefits remain
From April 2025, several tax reforms will impact the economics of EV salary sacrifice schemes. These include:
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- Company car tax: After a three-year freeze, Benefit-in-Kind (BiK) tax for EVs will increase from 2% to 3%, then by one percentage point in each of the following two years. By 2028/29, it will reach 7%, and 9% by 2029/30. This will affect both employee BiK payments and employer Class 1A National Insurance contributions.
- Vehicle Excise Duty (VED): EVs registered since 2017/18 are no longer exempt from VED. This change adds around £600 to the total cost of a four-year EV lease. Most new EVs also exceed £40,000 in value, meaning they now attract the Expensive Car Supplement – an extra £1,300 in cost over the lease period. Combined, these add roughly £40 per month to lease payments for most EVs.
- Plug-in hybrid taxation: From 2028/29, plug-in hybrids emitting 1–50g/km CO₂ will all fall into an 18% BiK band, regardless of electric range. This reduces their tax advantage and may make them less attractive over the life of a typical lease.
- Higher CO₂ values for PHEVs: New Euro 6e-bis emissions testing, to be completed by the end of 2025, could significantly increase official CO₂ values for plug-in hybrids. If emissions exceed 75g/km, some vehicles will no longer qualify for salary sacrifice schemes.
These changes will increase the cost of providing EVs through salary sacrifice, but the savings potential remains strong – particularly in the context of recent changes to employer National Insurance.
Salary sacrifice still reduces employer NICs
From 6 April 2025, the NIC rate for employers will increase from 13.8% to 15%, and the income threshold will drop from £9,100 to £5,000. This raises tax liabilities for businesses. However, salary sacrifice schemes can mitigate the effect.
For example, an employer with 2,000 staff earning the UK average of £36,000 faces an increase in NICs from £3,700 to £4,650 per employee. That’s a £1.9 million annual increase in tax. A salary sacrifice scheme with 7.5% employee participation could offset 12% of this rise, saving £228,000 per year. For each 1% of employees who opt in, the business can reduce its NIC burden by 1.6%.
We have seen real-world results that support this. One of our customers has projected an average saving of £6,000 in employer NICs per participating employee over a four-year period by replacing cash allowances with an EV salary sacrifice scheme.
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By GlobalDataStrategic fleet decisions support ESG goals
Beyond cost, salary sacrifice schemes also help companies reduce their carbon footprint and meet ESG targets. EVs typically offer lower lifecycle emissions and align with decarbonisation goals. Businesses that offer salary sacrifice are giving their employees accessible pathways to low-emission vehicles while demonstrating a proactive sustainability strategy.
These schemes also work well for employers that offer car allowances. If an employee chooses a vehicle that costs more than their allowance, the additional amount can be taken as salary sacrifice – allowing the business to benefit from reduced NICs and the employee to access an EV at lower cost than through traditional leasing or purchasing.
Staying ahead of policy change
As with any tax policy shift, the landscape is evolving. But that is not a reason to stop using salary sacrifice schemes. Instead, employers should ensure they understand the changes and adapt their strategies accordingly.
At Ayvens, we work closely with businesses to provide detailed financial modelling, helping them assess the cost impact of regulatory changes and plan accordingly. This includes optimising scheme structures, reviewing vehicle selections, and maintaining alignment with sustainability objectives.
Salary sacrifice remains a viable and valuable solution – even in a changing tax environment. It still enables employers to reduce costs, enhance employee benefits, and make progress on their ESG goals.
Matt Walters is Head of Consultancy Services and Customer Value at Ayvens
