Salary sacrifice is not just for pensions. Two of the most popular non-pension salary sacrifice schemes let you lease an electric car or get a bike at a significant tax advantage. This guide explains how both work for the 26-27 tax year, the real savings at different tax bands, and whether they are worth it for your situation. The same principle applies to both: because the sacrifice reduces your gross salary, you pay less income tax (20% or 40%) and less National Insurance (8% or 2%) on the amount sacrificed.
How does salary sacrifice work for benefits?
In a salary sacrifice arrangement, you give up part of your gross pay in exchange for a non-cash benefit provided by your employer. Because the sacrifice reduces your gross salary, you pay less income tax and National Insurance on the amount given up. Your employer may also save on Employer NI — some pass this saving to you as an additional benefit, further boosting the scheme's value. The key distinction from simply buying something yourself is that the payment comes from pre-tax income rather than after-tax income.[1]
See our salary sacrifice pension guide for the full mechanics. The same income tax and NI savings apply identically to EVs and bikes — the only difference is the Benefit in Kind (BIK) charge that applies to the car or bike, which partially offsets the saving but is very low for electric vehicles.
For someone earning £45,000, the combined marginal rate is 28%. Every £100 of salary sacrifice costs your take-home only £72 — meaning you get the benefit for 72% of its face value. Use our calculator at £45,000 to see your current deductions before considering a sacrifice.
What are the BIK rates for electric cars in 26-27?
Under an EV salary sacrifice scheme, your employer leases an electric car and you pay for it through a reduction in your gross salary. The key tax benefit is the ultra-low Benefit in Kind rate for electric cars. The BIK rate for a fully electric car (0g/km CO₂) is just 3% for 26-27 (rising to 4% in 2027/28 and 5% in 2028/29). This means you pay tax on only 3% of the car's list price — a fraction of the actual lease cost.[2]
For example, an electric car with a list price of £40,000:
- BIK value: £40,000 × 3% = £1,200/year
- Tax on BIK (40% taxpayer): £480/year = £40/month
- Tax on BIK (20% taxpayer): £240/year = £20/month
Compare this to paying for the same car personally: monthly lease payments of £400+ come from net (after-tax) income. The salary sacrifice route is significantly cheaper because you avoid both income tax and NI on the lease cost, and the BIK charge is minimal.
How much do I really save on an EV salary sacrifice?
The total saving depends on your tax band. For a 40% taxpayer sacrificing £500/month gross for a £40,000 EV:
- Salary sacrifice: £500/month from gross pay
- What it would cost from net pay: £500 ÷ (1 − 0.42) ≈ £862/month
- Net cost after BIK tax: £500 sacrifice + £40 BIK = £540 effective monthly cost
- Saving vs paying personally: approximately £322/month
The savings are real but vary by car price, lease term, and your marginal tax rate. Higher earners save more. Employees in the £100,000–£125,140 trap zone can save even further because the salary sacrifice reduces adjusted net income, potentially restoring the Personal Allowance of £12,579. If your salary is £110,000 and you sacrifice £10,000/year for an EV, your adjusted net income drops to £100,000 — restoring your full Personal Allowance and creating an effective 60% saving on that amount.
What should I consider before signing up for an EV scheme?
- Your salary must not fall below National Minimum Wage after the sacrifice. This limits the scheme for lower earners and means you need to account for all other sacrifice arrangements too.
- Reduced pension contributions — if your pension is a percentage of gross pay, sacrificing salary reduces the base. Some employers compensate for this by calculating pension on your “notional” (pre-sacrifice) salary. Check your scheme rules.
- Contract length — typical EV salary sacrifice leases are 2–4 years. If you leave your job, you may need to take over the lease personally or pay an early termination fee. The financial penalty can be significant if you leave within the first year.
- Insurance is usually included — most schemes bundle insurance, maintenance, and breakdown cover into the monthly cost, simplifying total cost of ownership compared to private ownership.
- BIK rates are rising — 3% in 26-27, rising to 4% in 2027/28 and 5% in 2028/29. Still far below petrol/diesel BIK rates (typically 25–37%), but the gap narrows over time.
How does the Cycle to Work scheme save me money?
The Cycle to Work scheme lets you get a bike and accessories through salary sacrifice. Your employer buys the equipment and leases it to you via a monthly deduction from your gross pay — typically over 12 months. Because the deduction comes from pre-tax income, you save the combined income tax and NI rate on every pound of the lease cost. There is no Benefit in Kind charge on the bike during the hire period, making it a clean saving with no offset.[3]
For a £1,200 bike over 12 months (£100/month sacrifice):
- Basic rate taxpayer (28% combined): save £336 over 12 months — effective cost £864
- Higher rate taxpayer (42% combined): save £504 over 12 months — effective cost £696
After the hire period ends, your employer will offer to sell you the bike. HMRC's guidelines suggest a “fair market value” transfer (often 3–7% of original price for bikes used over 3 years), though many employers transfer for free or a nominal fee. The combination of tax savings and low transfer cost means you typically pay 60–75% of retail price for the bike.
What can I include in a Cycle to Work order?
- The bike itself (any type — road, electric, folding, cargo)
- Safety equipment (helmet, lights, locks, high-visibility gear)
- Standard accessories (mudguards, panniers, bike computer)
There is no official price cap (the previous £1,000 limit was removed in 2019), though individual employers may set their own. Electric bikes (e-bikes) are eligible and increasingly popular — they can cost £2,000– £5,000, making the tax saving substantial. On a £3,000 e-bike, a higher rate taxpayer saves approximately £1260 versus buying outright.
Can I combine EV and bike sacrifice with pension sacrifice?
Yes. You can have multiple salary sacrifice arrangements running simultaneously — pension, EV, and bike — as long as your post- sacrifice salary remains above National Minimum Wage. The tax savings stack: each arrangement reduces your gross pay before tax and NI are calculated. However, be mindful of the total impact on your reference salary for mortgage applications and the base used for any percentage-based benefits like life insurance or income protection.
The order of priority depends on your circumstances. Pension sacrifice offers the highest long-term return (tax relief plus investment growth), but EV sacrifice offers immediate lifestyle benefits with a uniquely low BIK rate that won't last forever. The Cycle to Work scheme is typically smallest in value but offers a quick win with no ongoing commitment beyond 12 months.
How can I model the impact on my take-home pay?
Use our salary sacrifice calculator to see how a given monthly sacrifice amount affects your take-home pay. Enter the monthly sacrifice amount as a pension contribution to model the NI and tax saving — the mechanics are identical for any salary sacrifice arrangement. The only difference is the small BIK charge on the EV, which you can subtract from the saving shown. For a comprehensive view of all your deductions at your salary level, start with the main calculator.
Sources
- HMRC — Tax on your private pension: salary sacrifice arrangements. Confirms salary sacrifice reduces both income tax and NI liability. Accessed July 2026.
- HMRC — Tax on company benefits: Benefit in Kind. Electric vehicle BIK rate 3% for 26-27. Accessed July 2026.
- HMRC — Cycle to Work scheme implementation guidance. Guidance on employer schemes and tax treatment. Accessed July 2026.