If you’re coming to the end of a salary sacrifice EV agreement you signed in 2023 or 2024, you’ve probably noticed the tax landscape has shifted. The ultra-low 2% Benefit in Kind (BIK) rate that made electric company cars such an obvious financial win ended in April 2025. It’s now 3% for the 2025/26 tax year, rising to 4% in 2026/27 and 5% in 2027/28.
For anyone who locked in at 2%, those were golden years. But if you’re renewing now or considering a first salary sacrifice scheme, the sums look different. The question isn’t whether it’s still a good deal in absolute terms (it usually is), but whether it’s still the best deal compared to your other options.
What Actually Changed
Company car tax, officially called Benefit in Kind tax, is calculated on the list price of the car (its P11D value), multiplied by the BIK rate for that vehicle type, multiplied by your income tax rate. National Insurance contributions also come into play because salary sacrifice reduces your gross salary.
Electric vehicles enjoyed a 2% BIK rate from April 2020 to April 2025, a rate so low it was essentially a policy incentive. The government confirmed in 2023 that this would rise gradually: 3% in 2025/26, 4% in 2026/27, 5% in 2027/28, and then likely track inflation afterwards, though nothing beyond 2028 is set in stone yet.
For context, a petrol or diesel car with emissions of 130g/km faces a BIK rate of around 32%. Even at 5%, EVs remain in a completely different tax category.
Real Numbers: 2024 Agreement vs 2026 Renewal
Let’s take a specific example. A Tesla Model 3 Long Range has a list price of around £49,990 (at the time of writing). Say you’re a 40% taxpayer earning £60,000.
If you started a salary sacrifice agreement in April 2024 when the BIK rate was still 2%, your annual BIK tax would have been £49,990 x 2% x 40% = £400 per year, or about £33 per month. Your salary sacrifice payment might have been around £650 per month (this varies by provider and the specific lease terms), but you’d save on both income tax and National Insurance on that sacrificed amount. At 40% income tax and 2% NI, that’s a saving of roughly £273 per month. Your net cost: around £377 per month for a brand new Long Range Model 3, insurance often included.
Now let’s say you’re renewing in April 2026 with a 4% BIK rate. The BIK tax portion becomes £49,990 x 4% x 40% = £800 per year, or about £67 per month. That’s an extra £34 per month compared to the 2% rate.
The salary sacrifice payment from your provider might have changed too. Lease rates have fluctuated, and the Model 3’s list price has shifted slightly with specification changes. Let’s assume the monthly sacrifice is now £680 (a modest increase). At the same tax rate, you still save roughly £285 per month in tax and NI. Your new net cost: around £395 per month, plus that £67 BIK tax, so about £462 per month total.
That’s roughly £85 more per month than someone who locked in at 2% in 2024. Over three years, that’s about £3,060 more.
Is It Still Worth It Versus PCP or Cash?
Here’s where perspective matters. An £85 monthly increase sounds significant, but you need to compare it against the alternatives.
A PCP deal on the same Model 3 with a typical deposit and 10,000 miles per year would likely cost you around £550 to £650 per month, paid from your post-tax income. If you’re a 40% taxpayer, you’d need to earn roughly £917 to £1,083 per month gross to cover that payment. You’d also need to arrange your own insurance, typically another £60 to £100 per month depending on your circumstances.
Even at the higher 2026 rates, salary sacrifice still comes out considerably cheaper for most people in the 20% or 40% tax brackets, typically by £200 to £400 per month once you factor in the tax efficiencies and included maintenance and insurance.
Buying outright with cash avoids interest charges but ties up a significant amount of capital (around £50,000 for this example) that could be invested or used elsewhere. You’d also lose the tax advantages entirely.
When Salary Sacrifice Might Not Be Best
The numbers shift if you’re a basic rate taxpayer with a lower salary. The tax and NI savings are smaller (22% instead of 42%), so the gap between salary sacrifice and conventional finance narrows. If the sacrificed amount would push you below minimum wage thresholds (your employer is legally required to check this), you won’t qualify at all.
It’s also worth checking whether your employer’s scheme includes a sensible early termination clause. Life circumstances change, and being locked into a three or four year agreement with no reasonable exit can be a problem if you change jobs or your financial situation shifts.
What to Check Before You Renew
First, ask your salary sacrifice provider for an up-to-date quote with the new BIK rates clearly shown. Some providers offer online calculators that break down exactly what you’ll pay after tax.
Second, compare at least two alternative finance options (PCP from a dealer, personal lease, or bank loan) to see the actual price difference. Make sure you’re comparing like with like: check what’s included in the salary sacrifice package (insurance, maintenance, tyres) and price those separately for the alternatives.
Third, verify the figures with your payroll department. They can confirm exactly how the salary sacrifice will affect your take-home pay and whether you’ll remain above minimum wage thresholds after the sacrifice.
The 2% BIK rate was extraordinary, and it’s not coming back. But even at 4% or 5%, salary sacrifice remains one of the most tax-efficient ways for most employees to drive a new electric car. You’re just not getting quite the screaming deal that early adopters enjoyed.