If you’re considering a salary sacrifice EV, you’ve probably heard the slightly panicked whispers: company car tax is going up in April 2027. The Benefit in Kind (BIK) rate for electric cars, currently sitting at a very comfortable 2% for 2024/25, will rise to 3% in 2025/26, 4% in 2026/27, then jump to 5% in 2027/28 and 6% in 2028/29. The question keeping potential EV drivers awake at night is whether to sign a deal now and lock in lower rates for a few years, or wait and hope that lease prices fall enough to compensate.
I spent a week building spreadsheets to work this out, so you don’t have to.
What the Tax Rise Actually Means in Pounds
Let’s use a real example. Take a Tesla Model 3 Long Range with a P11D value (the list price for tax purposes) of around £50,000. If you’re a 40% taxpayer earning £60,000, here’s what you’ll pay in BIK tax each year at different rates:
At 2% (current 2024/25 rate): £400 per year, or about £33 per month
At 3% (2025/26): £600 per year, or £50 per month
At 4% (2026/27): £800 per year, or about £67 per month
At 5% (2027/28): £1,000 per year, or about £83 per month
At 6% (2028/29): £1,200 per year, or £100 per month
The jump from 4% to 5% in April 2027 adds £200 per year. For a basic rate taxpayer on £35,000, the same car would cost an extra £100 annually when the rate rises from 4% to 5%.
The Case for Signing Now
If you sign a four-year salary sacrifice agreement in, say, March 2025, you’d lock in rates of 3%, 4%, 4%, and 5% over the contract term. Sign in March 2028, and you’re paying 6% from day one.
Using our £50,000 Tesla example for a 40% taxpayer, the total BIK tax over four years would be:
Contract starting March 2025: £3,000 total over four years
Contract starting April 2027: £4,400 total over four years
That’s a £1,400 difference, or about £29 per month averaged across the contract. Not insignificant, but perhaps not the deal-breaker you might expect.
How Much Would Lease Prices Need to Fall?
Here’s where it gets interesting. Currently, a Tesla Model 3 Long Range through a typical salary sacrifice provider costs somewhere around £550 to £650 per month including insurance and maintenance. The question is whether lease prices might fall by enough after April 2027 to offset that £29 per month tax disadvantage.
Historically, EV lease prices have been volatile. The Tesla Model 3 was routinely available for under £500 per month in early 2023, then shot up as demand increased and Tesla adjusted UK pricing. By late 2024, prices had settled somewhat but remained elevated compared to 2022 levels.
For waiting to make financial sense, you’d need lease prices to drop by at least £30 to £40 per month by April 2027 to break even on the tax difference. Possible? Yes. Guaranteed? Absolutely not.
The Delivery Time Problem
Here’s a practical consideration that might make the decision for you: if you’re ordering now in early 2025, many popular models have delivery times pushing into late 2025 or even early 2026. Your salary sacrifice contract typically starts when you take delivery, not when you sign the paperwork.
This means ordering today might already lock you into starting at the 3% or 4% rate anyway, depending on the specific model and delivery slot. You’re not necessarily getting the 2% rate even if you sign immediately, unless you choose a model with very short delivery times or accept an in-stock vehicle.
Other Factors to Consider
Tax isn’t everything. A few other points worth weighing:
Your current car situation matters. If you’re spending £400 per month running a diesel that’s becoming unreliable, waiting two years to save £30 monthly on BIK tax makes no sense. You’ll spend far more keeping the old car alive.
Salary sacrifice eligibility is worth something. You need to be in a permanent role, typically past probation, and your employer needs to offer the scheme. If you’re in that position now, there’s no guarantee you will be in two years. Career changes happen.
The 2027 rates could change. These are legislated rates at the time of writing, but governments do occasionally adjust tax policy. Waiting on the assumption rates might be lowered is optimistic, but equally, they could rise further in future Budgets.
National Insurance savings remain substantial regardless. Through salary sacrifice, you avoid National Insurance on the sacrificed amount, which saves 8% (for basic rate taxpayers) or 2% (for higher rate) on the gross lease cost. This benefit exists whether BIK is 2% or 6%, and for most people represents hundreds of pounds yearly.
What I’d Do
If you need a car now or within the next six months, sign the deal. The tax difference over a contract term is real but modest, and trying to time the market on future lease prices is genuinely difficult. You’ll also benefit from lower rates in the early years of your contract.
If you don’t actually need a new car until 2027 or later, there’s no compelling reason to rush solely because of the tax rise. You might find better deals, newer models, or improved battery technology by waiting. The BIK increase alone isn’t dramatic enough to force your hand.
The worst decision would be signing up for a car you don’t really need or want just to avoid a tax rate that, in cash terms, works out to about a pound a day. Run the numbers for your specific salary and the car you’re actually considering. Check with your employer’s salary sacrifice provider for exact figures, as these can vary based on how their scheme is structured. And remember that even at 6%, electric company car tax remains extraordinarily favourable compared to petrol or diesel equivalents, which face BIK rates of 25% to 37% depending on emissions.