From April 2025, electric cars with a list price over £40,000 will pay an additional £425 per year in Vehicle Excise Duty (VED, also known as road tax) for five years. If you’re considering a salary sacrifice EV scheme, or already have one, you’re probably wondering: who actually pays this extra charge, and does it kill the financial benefit?
The short answer is that you, the employee, will almost certainly pay it. But the scheme still works out cheaper than buying or leasing the same car privately for most people. Here’s how it actually affects your monthly costs.
How the Expensive Car Supplement Works
The £40,000 threshold is based on the manufacturer’s list price when the car was new, including any factory-fitted options but excluding aftermarket additions. If your car crosses that line, you’ll pay the standard VED rate (which for EVs is currently £10 per year, rising with inflation) plus an additional £425 annually for years two through six of the car’s life.
That’s £35.42 per month, or about £177 over a typical five-month salary sacrifice agreement, depending on when you take delivery.
Most salary sacrifice providers will add this VED surcharge to your monthly gross salary deduction. This is actually better for you than paying it separately, because you’re effectively paying for it through pre-tax income.
A Worked Example: Just Below vs Just Above
Let’s compare two real scenarios using current tax rates and typical salary sacrifice pricing. Both assume a 40% taxpayer with a £50,000 salary.
Option 1: Cupra Born 59kWh (£36,585 list price)
This sits safely under the threshold. A typical salary sacrifice quote for this car might be around £450 per month as a gross salary deduction. Because you’re sacrificing salary before tax and National Insurance, your actual take-home reduction is roughly £270 per month (£450 minus 40% income tax and 2% NI). No VED surcharge applies.
Option 2: Tesla Model 3 Long Range (£44,990 list price)
This crosses the threshold by nearly £5,000. A typical gross salary deduction might be £550 per month, plus the VED surcharge of £35.42, giving a total gross deduction of around £585 monthly. Your take-home reduction works out at roughly £351 per month. The VED adds about £21 per month to your actual cost after tax relief.
The Tesla costs you £81 more per month in take-home pay than the Cupra, but £60 of that difference would exist regardless of VED changes. The actual impact of the expensive car supplement, after tax relief, is only about £21 per month.
Is It Still Worth It Compared to Private Leasing?
Absolutely, for higher-rate taxpayers especially. That same Tesla Model 3 would typically cost £550 to £600 per month on a private lease (36 months, 10,000 miles per year), paid from your net income after tax. You’d also pay for insurance separately, typically £500 to £900 per year, or £42 to £75 per month.
Through salary sacrifice, insurance and maintenance are usually included in your gross deduction, and you’re paying with pre-tax income. Even with the VED surcharge, you’re likely saving £200 to £250 per month compared to arranging everything privately.
Basic-rate taxpayers (20%) see smaller savings, but salary sacrifice still typically works out 15% to 20% cheaper than private alternatives, even for cars above £40,000.
What If You’re Already in a Scheme?
If you took delivery of your salary sacrifice EV before April 2025, the VED rules depend on when your car was first registered, not when the rules changed. Cars registered before April 2025 follow the old VED system where EVs pay nothing. You won’t suddenly start paying the surcharge mid-contract.
For new agreements starting from April 2025 onwards, your provider should be transparent about whether VED is included in your quoted monthly amount. Always ask them to break down exactly what’s included before you sign. Some providers may absorb VED costs into their overall pricing; others will show it as a separate line item.
Cars to Consider Just Under the Threshold
If you want to avoid the surcharge entirely, these popular models sit safely below £40,000 at the time of writing: the MG4 Trophy Long Range (£36,495), Hyundai Kona Electric Ultimate (£39,950), and Volkswagen ID.3 Pro S (£39,985). Be careful with optional extras, though. Adding metallic paint, a panoramic roof, or an upgraded sound system can easily push you over the line.
Check the exact list price including your chosen options with your salary sacrifice provider before committing. The threshold applies to the original list price, not any discounts your provider might have negotiated.
The Bottom Line
The £40,000 VED surcharge adds roughly £20 to £25 per month to your actual take-home cost if you’re a higher-rate taxpayer, or about £30 per month if you’re a basic-rate taxpayer. It doesn’t fundamentally change the salary sacrifice value proposition. You’re still saving significant money compared to private leasing or PCP finance, even on more expensive EVs.
Before choosing your car, ask your provider for a breakdown showing the monthly gross deduction, the VED element, and your estimated take-home impact based on your tax band. That way you’ll know exactly what you’re actually paying, not just what sounds good on paper.