If you’re signing up for a salary sacrifice electric car in 2025 or 2026, there’s a very good chance your contract will straddle April 2028. That’s when the current ultra-low 2% Benefit-in-Kind (BIK) rate for pure electric cars is guaranteed only until, with the rate widely expected to rise to 3% or 4% from the 2028/29 tax year onwards.
The question I hear most often: what actually happens to your monthly deductions when the tax rate changes halfway through your lease?
How salary sacrifice deductions work
Before we get to 2028, a quick reminder of how the numbers work. With salary sacrifice, you give up part of your gross salary in exchange for a car. You pay tax on the car’s value as a benefit, which for pure electric cars is currently calculated at 2% of the vehicle’s list price.
Let’s say you’re leasing a Volkswagen ID.3 with a P11D value (the official list price for tax purposes) of £40,000. At the 2% rate, your taxable benefit is £800 per year. If you’re a basic rate taxpayer, you pay 20% tax on that £800, which works out to £160 per year, or about £13 per month. Higher rate taxpayers pay 40%, so £320 per year, or roughly £27 per month.
Your total monthly deduction is this tax amount plus the gross salary you’re sacrificing for the lease itself, which typically covers the car, insurance, servicing, and tyres.
What changes in April 2028
The government hasn’t confirmed what the BIK rate will be from April 2028 onwards. At the time of writing, rates are fixed until 5 April 2028, after which they’re expected to rise. Most industry observers predict 3% for 2028/29, potentially rising to 4% in subsequent years, though this could change based on government policy.
Using our £40,000 ID.3 example, if the rate increases to 3%, your taxable benefit becomes £1,200 per year instead of £800. For a basic rate taxpayer, that’s £240 in tax annually (£20 per month) instead of £160. The increase is £80 per year, or about £7 per month. For a higher rate taxpayer, the increase would be £160 per year, or roughly £13 per month.
If the rate goes to 4%, a basic rate taxpayer would pay £320 annually (about £27 per month), an increase of £160 per year or £13 per month compared to the 2% rate.
The deduction changes automatically
Here’s the important bit: you don’t need to do anything. Your employer’s payroll system will automatically adjust your tax deduction when the new rates come into force. The salary you’re sacrificing stays exactly the same. Only the tax portion of your monthly deduction changes.
Most salary sacrifice providers, including the likes of Octopus Electric Vehicles, Zen Auto, and Tusker, have confirmed this is standard practice. Your contract doesn’t need to be rewritten, and you don’t need to sign anything new.
Can you exit if the rate increases?
Generally, no. Salary sacrifice car schemes are contractual agreements for a fixed term, typically three or four years. A change in BIK rates isn’t usually grounds for early termination without penalty.
Some providers allow early exit in specific circumstances such as redundancy, long-term illness, or maternity leave, but a tax policy change won’t trigger these clauses. You’d typically face an early termination charge covering the remaining lease payments, often thousands of pounds.
Before signing any salary sacrifice agreement, check the contract’s early termination terms carefully. This matters whether you’re worried about 2028 or simply want to understand your options if your circumstances change.
Is a deal starting now still worthwhile?
Let’s work through a realistic scenario. You sign a four-year salary sacrifice deal in January 2025 for that £40,000 ID.3. You get 28 months at the 2% rate (until April 2028), then 20 months at what we’ll assume is 3%.
As a basic rate taxpayer, you’d pay £373 in tax over the first 28 months (at £13.33 per month), then £333 over the remaining 20 months (at £20 per month), for a total of about £706 over four years.
If the 2% rate had continued for the full four years, you’d have paid £640. So the rate increase costs you an extra £66 over the life of the contract, or about £1.38 per month averaged across four years.
Compare this to running an equivalent petrol car through salary sacrifice at, say, 25% BIK. On the same list price, a basic rate taxpayer would pay £2,000 per year in tax, or £8,000 over four years. The EV, even with a rate increase to 3% partway through, still saves you over £7,000 in tax across the contract.
What to check before signing
If you’re considering a salary sacrifice deal that will run past April 2028, ask your provider to model the costs at both 2% and a higher rate such as 3% or 4%. Reputable providers should be willing to show you these scenarios.
Also check how the rate increase affects your take-home pay. If you’re close to a financial threshold such as retaining child benefit (which starts to taper when adjusted net income exceeds £60,000), even a small increase in taxable income could have knock-on effects. This may change based on current rates and thresholds.
For most people, though, the increase from 2% to even 4% still leaves electric cars as by far the most tax-efficient company car option. A few extra pounds per month from 2028 doesn’t fundamentally change that arithmetic, particularly when you factor in the savings on fuel, servicing, and the current exemption from National Insurance contributions on the benefit value.
The key is going in with realistic expectations. The 2% rate was always a temporary incentive, and salary sacrifice deals have always been multi-year commitments. If the numbers work for you at 3% or 4%, which they probably will if you’re replacing a petrol company car or a personal lease, then a rate increase partway through shouldn’t put you off a deal starting now.