The EV company car tax sweet spot is coming to an end. Benefit-in-Kind (BIK) rates for electric vehicles, which have sat at a remarkably low 2% since April 2024, are set to rise to 3% in April 2025, then 4% in April 2027, and 5% in April 2028. If you’re considering a salary sacrifice EV scheme, that’s a lot of change coming quickly, and it raises an important question: is it better to lock in now, or wait and hope that falling lease prices offset the higher tax bill?
I’ve spent the past fortnight running the numbers on popular salary sacrifice models, talking to scheme providers, and trying to work out what makes sense for someone facing this decision today. Here’s what I found.
What the BIK increase actually costs you
BIK is the tax you pay on the value of your company car. For an EV, you pay income tax on a percentage of the car’s list price (the P11D value). Right now, at 2%, that percentage is tiny. From April 2025 it becomes slightly less tiny, and by 2027 it’s merely small.
Let’s take a Tesla Model 3 Long Range, which has a P11D value of around £50,990. If you’re a 40% taxpayer taking this car through salary sacrifice in 2024, you’d pay BIK of roughly £408 per year, or £34 per month. In April 2027, when the rate hits 4%, that same car costs you £816 per year, or £68 per month. That’s an extra £34 per month, or about the cost of a decent phone contract.
For a more affordable option like the MG4 Trophy Long Range (P11D around £36,495), a 40% taxpayer currently pays about £292 per year in BIK, or roughly £24 per month. In 2027, that rises to £584 per year, or £49 per month. An extra £25 per month.
These aren’t devastating increases, but they’re not nothing either. Over a typical four-year lease, that extra £25 to £34 per month adds up to between £1,200 and £1,632 in additional tax.
But lease prices are falling
Here’s where it gets interesting. EV lease prices have been dropping fairly consistently over the past 18 months. The same Tesla Model 3 that might have cost £650 per month through salary sacrifice in early 2023 can now be had for closer to £500 to £550 per month through many providers, depending on mileage and contract length.
The question is whether this trend continues. Several factors suggest it might: battery prices are falling, production is ramping up, and there’s increasing competition in the market. Chinese manufacturers are pushing prices down across multiple segments. If the monthly lease price on that Model 3 drops by another £50 per month by late 2026, that would more than offset the £34 monthly BIK increase come April 2027.
But there’s no guarantee. Tariffs on Chinese EVs, currency fluctuations, and changes in residual value predictions could all push prices the other way. Used EV values have been particularly volatile, which makes leasing companies nervous and can push monthly costs up.
The National Insurance savings aren’t changing
One thing that often gets overlooked in these discussions: the National Insurance savings from salary sacrifice remain the same regardless of when you sign up. Because you’re exchanging gross salary for the car, you save both income tax and National Insurance contributions on the sacrificed amount.
On a £500 per month lease, a 40% taxpayer making £50,000 to £100,000 per year saves roughly £200 per month in income tax and NI (assuming they’re paying 2% NI on earnings above £50,270). That’s a significant chunk of the cost, and it doesn’t diminish as BIK rates rise. The rising BIK just means you pay slightly more tax on the benefit itself.
What about your current car situation?
The decision isn’t purely financial. If you’re currently spending £400 per month running an ageing diesel that needs £800 worth of work to pass its next MOT, waiting 18 months to save £25 per month on a salary sacrifice deal probably doesn’t make sense. You’ll spend more keeping your current car going than you’d save on the future lease.
If you’re in a perfectly serviceable car that costs you very little, the calculus changes. You can afford to wait and see how the market develops.
The contract length consideration
Most salary sacrifice schemes run on three or four-year contracts. If you sign up in late 2024 or early 2025, you’ll be locked into that 2% or 3% BIK rate for the duration of your contract, even as rates rise. Your BIK is based on the rate when you took the car, not when it changes.
This means someone taking a car in March 2025 pays 2% BIK for their entire lease, potentially running until 2028 or 2029. Someone waiting until May 2027 pays 4% for the full term. Over a four-year lease on that Model 3, that’s the difference between paying £408 per year and £816 per year, or £1,632 over the life of the contract.
The real question: will lease prices fall by enough to make up that difference? If the monthly lease cost drops by £35 or more, waiting makes sense. If it drops by less than that, or rises, signing earlier wins.
My suggestion
If you need a car now or in the next six months, don’t wait. The 2% and 3% BIK rates (current through March 2025 and then April 2025 through March 2027) are genuinely excellent, the salary sacrifice savings are substantial, and trying to time the market on lease prices is genuinely difficult. The money you’d spend keeping an old car running or the value you’d lose on a replacement likely exceeds any potential saving from holding out.
If your current car is cheap to run and you’re comfortable waiting, keep an eye on lease prices through 2025 and into 2026. If they’re falling noticeably, you might come out ahead even with the higher BIK. But check quotes from multiple salary sacrifice providers every few months. The moment prices seem to stabilise or tick upward, that’s probably your signal to move.
One practical tip: most salary sacrifice providers will give you a quote that’s valid for 30 to 60 days. Get a quote now for your preferred car, note the monthly cost, and then get another quote every quarter. That gives you real data on whether prices are actually falling, rather than guessing. If you see the monthly cost drop by £40 or £50 between now and mid-2026, waiting might pay off. If it’s flat or rising, you’ll know you shouldn’t delay further.