The company car tax rate for pure electric vehicles jumped from 2% to 3% in April 2026, a 50% increase that’s sparked concern among anyone considering salary sacrifice EV schemes. If you’ve been weighing up whether to sign up, you’re probably wondering whether the numbers still make sense.
Short answer: yes, they do. The increase stings, but salary sacrifice remains significantly cheaper than buying or financing an EV yourself. Let me show you the actual numbers.
What the 3% Rate Actually Means
Company car tax, officially called Benefit in Kind (BIK) tax, treats your company car as taxable income. The amount you pay depends on the car’s list price (its P11D value in tax speak), its CO2 emissions, and your income tax band.
For pure electric vehicles, the BIK rate was 2% for the 2025/26 tax year. From April 2026, it’s 3%. For context, a petrol or diesel car typically sits between 25% and 37%, depending on emissions.
Here’s what that means for a popular salary sacrifice choice, the Tesla Model 3 Long Range with a P11D value of £49,990. I’m using this car because it’s one of the most common salary sacrifice vehicles and falls comfortably within the £50,000 threshold where things get more complicated.
Basic Rate Taxpayer (20%)
At 2% BIK: £49,990 × 2% = £999.80 taxable benefit per year. Tax owed: £999.80 × 20% = £199.96 annually, or about £16.66 per month.
At 3% BIK: £49,990 × 3% = £1,499.70 taxable benefit. Tax owed: £1,499.70 × 20% = £299.94 annually, or £25 per month.
That’s an extra £100 per year, or £8.34 per month.
Higher Rate Taxpayer (40%)
At 2% BIK: Tax owed is £399.92 annually, or £33.33 per month.
At 3% BIK: Tax owed is £599.88 annually, or about £50 per month.
Extra cost: £200 per year, or £16.67 per month.
Is It Still Worth It?
To answer this properly, we need to compare salary sacrifice against the alternatives: PCP finance or cash purchase. I’ll use typical salary sacrifice monthly costs for the same Tesla Model 3, which include the car, insurance, servicing, and tyres.
A typical three-year salary sacrifice deal for this car costs around £600 per month (this varies by provider and your employer’s arrangement, but this is representative of schemes from providers like Octopus Electric Vehicles and Tusker at the time of writing).
Because you pay this from your gross salary before tax and National Insurance, you don’t pay the full £600. Here’s what you actually lose from your net pay each month:
Basic rate taxpayer: around £432 per month (you save 28% in tax and NI, the 12% NI rate plus 20% income tax, but pay the £25 BIK tax, so net reduction is roughly £600 × 0.72 = £432)
Higher rate taxpayer: around £378 per month (you save 42%, the 2% NI rate plus 40% income tax, but pay the £50 BIK tax, so roughly £600 × 0.58 = £348, plus £50 = £398. Let me recalculate this more precisely: £600 × 0.58 = £348 net cost, then add the £50 BIK = £398 per month)
Compare this to PCP finance on the same car. Based on current rates, you’re looking at around £550 to £600 per month for a three-year deal with a typical deposit and final payment. But this comes from your net income after tax, and it doesn’t include insurance (add £80 to £120 per month for a typical driver), servicing, or tyres.
Total PCP cost from your pocket: £630 to £720 per month, likely more for younger drivers or those with less favourable insurance profiles.
The salary sacrifice option, even with the 3% BIK rate, saves a basic rate taxpayer roughly £200 to £290 per month compared to PCP. For a higher rate taxpayer, it’s £230 to £320 per month. Over three years, that’s between £7,200 and £11,520 in savings.
What About the Emotional Math?
Yes, losing an extra £8 or £16 per month to the tax increase feels annoying, particularly if you’d been planning based on the 2% rate. But context matters. You’re still coming out thousands of pounds ahead compared to conventional finance, and you’re getting a hassle-free package with no insurance renewal faff, no MOT to remember (for the first three years anyway), and no surprise service bills.
The 2% rate was genuinely extraordinary, a policy designed to kickstart EV adoption. The 3% rate is still extraordinarily generous compared to petrol and diesel company cars. The government has confirmed BIK rates will rise to 4% in 2027/28 and 5% in 2028/29, so this was never going to stay at 2% forever.
One Thing to Watch
If you’re considering a salary sacrifice car with a list price over £50,000, you’ll need to factor in an additional flat rate tax of £425 per year (at the time of writing) for the first five years of the car’s life. This applies to any car, including EVs, and it’s separate from the BIK calculation. On a £55,000 car, for instance, you’d pay BIK on £55,000 at 3%, plus the £425 expensive car supplement, which works out to an extra £35.42 per month. Still likely worth it, but do the sums carefully, and check whether your employer’s scheme includes these pricier models.
Before signing anything, verify the current BIK rates with HMRC or your employer’s salary sacrifice administrator. Tax policy can shift, particularly around Budget time, and you’ll typically be committed to a scheme for two to four years. Make sure you’re comfortable with the rates as they’re scheduled to increase to 4% and 5% in the coming years, and factor those rises into your decision if you’re looking at a longer agreement.