From April 2025, electric cars lost their exemption from Vehicle Excise Duty (VED, or road tax). If you’re considering salary sacrifice for an EV in 2026 or beyond, you’ll now pay £10 for the first year, then £195 annually from year two onwards. For cars with a list price over £40,000, there’s an additional £425 ‘expensive car supplement’ for five years, bringing the total to £620 per year (or about £52 per month).
\p>The question everyone’s asking: does salary sacrifice still make sense when you’re adding hundreds of pounds in road tax to the equation?
What the Numbers Actually Look Like
Let’s work through a real example. Say you’re a 40% taxpayer earning £60,000, and you’re looking at a Tesla Model 3 Long Range through salary sacrifice. The list price is around £49,990 (at the time of writing), so you’ll pay the expensive car supplement.
Your monthly salary sacrifice payment might be £450. Because this comes out of your gross salary before tax and National Insurance, you’re not paying 40% income tax and 2% NI on that £450. That’s a saving of £189 per month, or £2,268 per year. Your actual cost is £261 per month after tax relief.
Now add the road tax: £620 per year, or about £52 per month. Your total monthly cost becomes £313. That’s still £137 per month less than the headline salary sacrifice price, thanks to the tax savings.
Before April 2025, you wouldn’t have paid that £52 per month in VED. So yes, the scheme has become more expensive. But the tax advantages still significantly outweigh the new road tax costs.
Below £40,000: The Sums Change
Choose a car under the £40,000 threshold and the picture improves. Take a Volkswagen ID.3 with a list price of £39,950. You’ll pay £10 in year one, then £195 annually (about £16 per month) from year two. No expensive car supplement.
On a £380 monthly salary sacrifice payment, a 40% taxpayer saves £159.60 per month in tax and NI. Actual cost: £220.40 per month. Add £16 for road tax from year two, and you’re at £236.40. The tax savings still dwarf the VED costs by nearly ten to one.
For basic rate (20%) taxpayers, the maths still works, just less dramatically. On that same ID.3, you’d save £83.60 per month in tax and NI (22% of £380), bringing your cost to £296.40 before VED, or about £312 per month including road tax from year two.
What About Cars You Already Have on Scheme?
\p>If you took delivery of an EV through salary sacrifice before 1 April 2025, you won’t pay VED for vehicles registered before that date. Your car remains exempt for its lifetime, not just the duration of your salary sacrifice agreement.
This matters if you’re in year two of a three or four year agreement. You’ll continue paying nothing for road tax, even after April 2026. The VED changes only apply to cars first registered from April 2025 onwards.
The Expensive Car Supplement: Five Years and Out
That £425 surcharge on cars over £40,000 applies for five years starting from the second year of registration (you pay standard rate in year one). After five years, you drop back to the standard rate, currently £195 per year.
Most salary sacrifice agreements run for two, three, or four years. If you’re on a three year deal with a £50,000 car registered in May 2025, you’ll pay the expensive supplement for your entire agreement period. By the time the car finishes its five year supplement window, it’ll be someone else’s problem, likely at auction or on a used car forecourt.
One Thing Worth Doing Now
Before signing up, ask your salary sacrifice provider for a full cost breakdown that includes VED. Some providers build the road tax into your monthly payment, others require you to tax the car separately. The total cost is the same, but the payment method affects your monthly budgeting.
Also verify the car’s exact list price. Manufacturers occasionally adjust prices, and even £51 can tip you over the £40,000 threshold. That’s worth £2,125 in extra VED over five years, or about £35 per month. If you’re borderline, ask whether a lower trim or smaller battery keeps you under the limit.
The fundamental deal hasn’t changed: salary sacrifice still offers substantial tax savings that comfortably exceed the new road tax costs, particularly for higher rate taxpayers. You’re paying more than you would have in 2024, but you’re still paying considerably less than if you financed the same car outside a salary sacrifice arrangement.