From April 2026, electric vehicles will start paying Vehicle Excise Duty (road tax) for the first time. If you’re driving an EV through a salary sacrifice scheme, or thinking about joining one, you’re probably wondering whether this means your monthly payments are about to jump. The short answer is: it depends on your scheme provider, but you won’t be paying twice.
The Two Taxes Everyone’s Confusing
First, let’s untangle what we’re actually talking about, because there are two completely separate taxes at play here.
Company car tax (officially called Benefit in Kind tax) is what you pay on the value of having a company car for personal use. For electric cars in the 2024/25 tax year, this is charged at 2% of the car’s list price. This is the tax that comes out of your gross salary before you see it, and it’s the main tax implication of salary sacrifice schemes.
Vehicle Excise Duty (VED, or road tax) is the annual charge for keeping a vehicle on the road. Currently zero for EVs, but from April 2026, electric cars will pay the standard rate, which is £195 per year at current rates. This amount may change before 2026.
These are completely different taxes collected for different reasons. You’re not being taxed twice on the same thing.
Who Actually Pays the Road Tax?
Here’s where salary sacrifice arrangements matter. In a salary sacrifice scheme, you don’t own the car. The leasing company or your employer’s fleet provider owns it, and they’re responsible for VED.
What happens to that £195 annual cost (or about £16 per month) depends entirely on how your scheme provider handles it. I spoke to several major salary sacrifice providers, and they’re taking different approaches.
Some providers, including Octopus Electric Vehicles and Tusker, have confirmed they’ll absorb the VED cost into their existing pricing structure without passing it directly to employees. Others are building it into monthly payments for new agreements signed after the change takes effect. A few are still finalising their approach.
The crucial point: your scheme administrator decides this, not HMRC or the government.
What Happens to Existing Agreements?
If you signed a three or four-year salary sacrifice agreement before April 2026, the situation varies by provider.
Most providers are honouring existing agreements at the originally quoted monthly cost. If you signed up in 2024 for a four-year term, and your agreement stated a fixed monthly sacrifice amount, that amount typically won’t change when VED is introduced in 2026.
However, check your agreement’s terms and conditions. Some contracts include clauses allowing for adjustments if tax or regulatory costs change. If you’re currently in a scheme, it’s worth asking your HR department or scheme administrator directly what happens to agreements that span the April 2026 date.
Worked Example: A Typical Salary Sacrifice EV
Let’s use a real example. Say you’re taking a Volkswagen ID.3 on salary sacrifice with a list price of £40,000.
Your current monthly costs (based on typical 2024 pricing) might look like this: salary sacrifice deduction of £450 per month, which includes the lease, insurance, maintenance, and tyres. As a basic rate taxpayer earning £35,000, you’re saving about £144 per month in tax and National Insurance compared to leasing the same car personally, so your actual cost is around £306 per month.
From April 2026, VED of £195 per year gets added. That’s about £16 per month. If your provider passes this cost on directly, your gross sacrifice might increase to £466 per month. Your tax and NI savings also increase slightly (by about £5 per month), so your actual net cost rises to around £322 per month.
That’s an extra £16 per month in real terms, assuming full pass-through of the VED cost.
However, if you’re a higher rate taxpayer, the numbers work out slightly better. The same £16 monthly VED increase would only cost you about £10 per month after tax relief, because you’re saving 40% income tax plus National Insurance on the sacrifice amount.
What About Expensive Electric Cars?
Here’s an important detail that catches people out. Electric cars with a list price over £40,000 will pay an additional £425 per year (at current rates) for five years from the second time the vehicle is taxed. This is the “expensive car supplement” that already applies to petrol and diesel cars.
For a salary sacrifice EV over £40,000, this means potential VED of £620 per year from the vehicle’s second year of registration, or about £52 per month. Again, whether this lands on you depends on your provider’s policy and when the car was first registered.
If you’re considering a higher-end EV like a BMW i4 M50 (list price around £65,000) on salary sacrifice, ask your provider specifically how they’re handling the expensive car supplement for vehicles registered after April 2025.
The Practical Takeaway
Before signing any salary sacrifice agreement, ask your provider three specific questions. First, how will VED be handled from April 2026 for your specific agreement term? Second, is the VED cost included in the quoted monthly figure or will it be added later? Third, if your agreement spans April 2026, will your monthly cost change?
Get the answer in writing, ideally in the agreement terms. And remember that policy details can change, so if you’re signing up in 2024 or 2025 for delivery in 2026, verify the current VED rates and expensive car threshold with your provider at the time you sign, not based on today’s figures.