Benefit in Kind Tax Explained: EVs & Salary Sacrifice (2026)

Most employees have no idea what "benefit in kind" means until it shows up on their payslip. If that's you, you're in the right place.

Benefit in kind (BiK) tax is what you pay when your employer gives you something valuable on top of your salary — a company car, private health insurance, a gym membership. HMRC treats these perks as part of your total pay and taxes them accordingly.

The good news? If you're driving an electric car through salary sacrifice, the BiK rate is just 4% in 2026/27. Compare that to 26–37% for most petrol and diesel cars, and you start to see why EVs have become the most tax-efficient company car in the UK. This guide breaks down exactly what BiK is, how it's calculated, what you'd actually pay each month on a real car, and why salary sacrifice makes the numbers even more compelling.

What Is Benefit in Kind (BiK) Tax?

Benefit in kind tax is the income tax you pay on non-cash perks your employer provides in addition to your salary.

If your employer gives you something worth money that isn't cash — a company car, private medical cover, or subsidised accommodation — HMRC classes it as a taxable benefit. Your total compensation isn't just cash, so the tax system is designed to capture the rest too.

Common benefits that attract BiK include:

• Company cars available for private use (including commuting)
• Private medical or dental insurance
• Interest-free or low-interest loans
• Gym memberships or wellness benefits
• Employer-provided accommodation

For most employees, BiK tax is deducted automatically through PAYE each month. You don't need to fill in a self-assessment tax return or do anything manually — your employer and payroll handle it. You'll see the impact on your payslip as an adjusted tax code or a separate deduction line.

One important point: employees do not pay National Insurance on benefits in kind. You pay income tax only. Your employer pays Class 1A NI at 15% on the benefit value — but that comes from their side, not yours. It's worth knowing, because it comes up when comparing salary sacrifice to other car arrangements.

How Is BiK Tax on a Car Calculated?

The formula is simple:

P11D value × BiK rate × your income tax rate = annual BiK tax

Three inputs. Each one matters. Let's go through them. (Source: GOV.UK — Company car benefit calculation)

What Is the P11D Value?

The P11D value is the car's published UK list price including VAT, delivery charges, and any factory-fitted optional extras. It's always based on the manufacturer's list price — not whatever deal you or your employer negotiated, and not what the car is currently worth.

Two things are specifically excluded from the P11D value: the first registration fee (currently £55) and Vehicle Excise Duty (road tax). Everything else — metallic paint, a larger battery pack, a premium interior upgrade — gets added in.

If an employee makes a capital contribution towards the car at the start of the agreement, that contribution reduces the P11D value, but only up to a maximum of £5,000. For most salary sacrifice arrangements, no capital contribution is required.

What Is the BiK Rate?

The BiK rate is a percentage set annually by HMRC, based on the car's CO₂ emissions and fuel type. The lower the emissions, the lower the BiK rate — and this is where electric cars pull dramatically away from the pack.

For a zero-emission EV in 2026/27, the BiK rate is 4%. For a petrol car emitting 130 g/km of CO₂, it's 33%. Same formula, wildly different outcome. The BiK rate is the single biggest lever in determining how much company car tax you pay.

BiK Rates for Electric Cars (2026–2030)

EV BiK rates are confirmed by HMRC through to 2029/30. The current rate is 4% in 2026/27, rising gradually to 9% — still less than a third of what you'd pay on a typical petrol or diesel car.

Sources: HMRC Appendix 2: Company car BiK rates · Autumn Budget 2024

Rates for petrol and diesel cars range from 16% at the cleanest end to 37% for high-emission vehicles, with an additional 4% diesel supplement for cars that don't meet the RDE2 emissions standard. For the vast majority of ICE cars on UK roads, you're looking at the 26–37% bracket.

Even at 9% in 2029/30, EVs will still have BiK rates roughly four times lower than the average petrol car and more than four times lower than high-emission vehicles. There is no other vehicle type that comes close.

Why Are EV BiK Rates So Low?

It's a deliberate government incentive.

The UK's Zero Emission Vehicle mandate requires manufacturers to sell an increasing proportion of zero-emission cars each year, reaching 80% by 2030. Low BiK rates are the demand-side mechanism — they make EVs dramatically cheaper as company cars, driving employee uptake and helping manufacturers hit their ZEV targets.

The rates are rising incrementally, which matters if you're considering salary sacrifice. A 48-month deal agreed in 2026/27 starts at 4% — by the time it ends in 2030, the rate will have reached 9%. Both figures are still a fraction of what you'd pay on any petrol or diesel car throughout the same period.

How Much BiK Tax Would You Actually Pay? Real Car Examples

To make this concrete, here are the monthly BiK tax figures for popular EVs available through loveelectric, using 2026/27 rates.

Renault 5 (P11D ~£28,000)

Tesla Model 3 (P11D ~£45,000)

BMW i4 (P11D ~£52,000)

For comparison: a similarly priced petrol BMW 3 Series (P11D ~£52,000) at a 34% BiK rate would cost a higher-rate taxpayer £7,072 per year — or £589 per month. The BMW i4 costs £69/month. That is a saving of over £520 every month, just on BiK tax alone.

Note: always verify the current P11D value directly on the manufacturer's website before making any decisions, as prices change.

BiK Tax on a Salary Sacrifice Car: Worked Example

BiK tax is only one part of the salary sacrifice calculation. To understand the true cost, you need to look at the full picture — what you gain from salary sacrifice at the same time as what BiK costs you.

Let's work through a real car with real numbers.

The setup:

• Car: Tesla Model Y Long Range AWD
• P11D value: ~£52,990
• Gross salary: £55,000
• Tax bracket: 40% (higher-rate taxpayer)
• Monthly gross salary sacrifice: ~£700 (illustrative lease cost)
• BiK rate (2026/27): 4%

Step 1 — Calculate the annual BiK tax:

£52,990 × 4% = £2,119.60 (annual BiK value)
£2,119.60 × 40% = £847.84 per year = £70.65 per month

Step 2 — Calculate the savings from salary sacrifice:

Your £700/month sacrifice is deducted from your gross salary before income tax and NI are calculated. That means:

• Income tax saving: £700 × 40% = £280/month
• NI saving: £700 × 2% = £14/month (above £50,270, employee NI drops to 2%)
• Total monthly saving from sacrifice: £294

‍Step 3 — The net position:‍

Tax/NI saving from salary sacrifice | +£294/month
BiK tax cost |− £70.65/month
‍Net monthly benefit | +£223.35/month

The £700 gross sacrifice actually costs you roughly £477 in take-home pay — a saving of around 32% compared to the headline lease figure. And the car comes with insurance, maintenance, tyres, breakdown cover, and road tax all included.

For a basic-rate taxpayer on £40,000, the same car works out differently:

• Monthly BiK tax: £52,990 × 4% × 20% = £35.33/month
• Income tax saving: £700 × 20% = £140/month
• NI saving: £700 × 8% = £56/month (between £12,570 and £50,270, employee NI is 8%)
• Total monthly saving: £196
• Net monthly benefit: £160.67

The effective take-home cost is around £539/month for a fully-insured, fully-maintained Tesla Model Y. For full worked examples across different cars and salary bands, get a quote for any vehicles here.

Let's also look at a smaller car for a mid-range salary:

Renault 5 EV — employee earning £40,000, basic-rate taxpayer, 48-month lease, 8,000 miles/year:

Before salary sacrifice:

• Gross monthly salary: £3,333
• Income tax: £427/month
• National Insurance: £174/month
• Net pay: £2,732/month

After salary sacrifice (gross sacrifice: £442/month):

• Revised gross salary: £2,891/month
• Income tax: £357/month (saving: £70)
• NI saving: £11/month
• BiK tax (4%): ~£19/month
• Effective net cost to employee: approximately £380/month

Result: A brand-new electric Renault 5 — including comprehensive insurance, servicing, tyres, breakdown cover, and road tax — for significantly less than the gross sacrifice figure. That's the power of pre-tax deductions at work.

BiK Tax vs Income Tax + NI Savings: The Net Position

The key thing to understand about salary sacrifice is that two things happen simultaneously.

You gain a BiK tax charge — small, because EV rates are so low. And you lose income tax and NI on the sacrificed amount — much larger, because the full sacrifice value is deducted from your gross pay before tax. For a 40% taxpayer, the income tax and NI saving on a £700/month sacrifice is roughly £294. The BiK cost is £71. The savings are more than four times the cost.

That gap is what makes EV salary sacrifice one of the most effective employee benefits available in the UK right now — and why it consistently delivers savings of 30–55% compared to leasing the same car privately. To understand how the savings look across different income tax brackets, see our tax bracket savings guide.

Salary Sacrifice vs Company Car Allowance: Which Is Better?

A car allowance sounds straightforward, but it's taxed as regular salary. You pay income tax and NI on every penny of it. A £7,000 annual car allowance for a 40% taxpayer is worth roughly £3,600 after deductions — and you still need to source the car, arrange insurance, cover maintenance, and fund fuel out of that reduced amount.

With salary sacrifice, the deduction happens before tax. The BiK charge is minimal on an EV. The car comes fully bundled — insurance, servicing, tyres, and breakdown are all included with loveelectric. For most employees, especially higher-rate taxpayers, salary sacrifice delivers substantially more value than taking the cash.

What Do EV BiK Rates Mean for Employers?

Many employers worry about the cost implications of offering electric vehicles through salary sacrifice. In practice, a well-structured scheme should be cost-neutral for the business.

Employer NI on BiK is minimal for EVs:

Employers pay Class 1A National Insurance at 15% on the BiK value. Because EV BiK values are so low, these contributions are a fraction of what they'd be for a petrol or diesel equivalent.

For a Renault 5 with an annual BiK value of £1,120 (at 4%):

• Employer Class 1A NI: £1,120 × 15% = £168/year (£14/month)

For a petrol equivalent with an annual BiK value of ~£9,240:

• Employer Class 1A NI: £9,240 × 15% = £1,386/year (£115.50/month)

Why salary sacrifice is cost-neutral for employers:

When structured correctly, the savings to the business offset the costs. Employees' reduced gross salaries lower the employer's NI contributions on earnings — and loveelectric's model is structured so that our commission equals the employer's NIC savings. Businesses are never out of pocket, and they gain a meaningful employee benefit in the process.

Additional employer benefits:

• Strengthens sustainability credentials and supports net zero commitments
• Improves employee attraction and retention without increasing base salaries
• No credit checks required — accessible to a wider employee population
• loveelectric handles all payroll reporting, with HMRC-compliant documentation delivered in advance of every new vehicle delivery

Our Zero Risk Guarantee also protects employers: if an employee needs to end their lease early due to redundancy, maternity leave, or a change in circumstances, loveelectric provides support and reimbursement — removing the financial risk from the business entirely.

Will EVs Stay Tax-Efficient Beyond 2030?

Despite the planned BiK rate increases, electric vehicles will remain the most tax-efficient company car choice for the foreseeable future. And from 2030, new petrol and diesel cars won't be on sale in the UK — making EVs the default for anyone wanting a new vehicle through a company scheme.

The rates in context:

Even at 5% in 2027/28, EV BiK rates will be roughly five to six times lower than a typical petrol car. At 9% in 2029/30, they'll still be four times lower. The government's gradual approach avoids sudden changes that could destabilise the market while signalling long-term policy certainty to both businesses and employees.

What to watch beyond 2030:

Official rates beyond 2029/30 haven't been confirmed, but the direction of travel is clear — EVs will continue to enjoy a significant tax advantage. The 2024 Autumn Budget extended favourable treatment and provided rare multi-year certainty, which is itself a signal of ongoing policy support.

Factors worth monitoring include road pricing mechanisms as fuel duty revenues decline, VED restructuring, and further refinements to BiK bands. loveelectric continuously monitors policy developments and keeps clients informed of any changes that affect their scheme.

The rates are confirmed to stay favourable through to 2028 — even beyond that, no other vehicle type comes close to the tax efficiency of a zero-emission EV.

Frequently Asked Questions

Do I pay National Insurance on a benefit in kind?

No. Employees pay income tax on BiK but not National Insurance. Your employer pays Class 1A NI at 15% on the BiK value, but that comes from their side — not yours. This is an important distinction when you're comparing the full cost of a salary sacrifice car to other options.

Can I avoid paying BiK tax on my electric car?

Not entirely — BiK applies to any company car or salary sacrifice vehicle available for private use. But at 4%, the charge is so small it's rarely a barrier. On a £52,990 EV, a higher-rate taxpayer pays just over £70/month in BiK tax. The income tax and NI savings from salary sacrifice are typically four times that figure. You are paying a small tax, but saving a much larger one.

What is the difference between P11D and P11D(b)?

The P11D is the form your employer files with HMRC for each employee who receives taxable benefits. It lists every perk provided and its value for the tax year. The P11D(b) is a single employer-level return that declares the total Class 1A National Insurance owed across all employees' benefits combined. As an employee, you don't need to worry about filing either — your employer handles both. The values are used to adjust your tax code, which is where you'll see the impact on your payslip.

What happens to my BiK if I return the car early?

BiK is calculated on a daily basis. As soon as the car is returned and no longer available to you, the BiK charge stops from that date — you won't be taxed on a car you no longer have access to. With loveelectric, our Zero Risk Guarantee provides structured support if your circumstances change: redundancy, maternity leave, long-term illness, or any other qualifying situation. You won't be left managing an early termination alone.

Is BiK tax the same as road tax?

No — and this is one of the most common sources of confusion. Road tax (Vehicle Excise Duty, or VED) is a separate annual charge based on the car's CO₂ emissions and list price, paid to the DVLA. BiK is the income tax you pay for the benefit of having a car made available to you by your employer. They're calculated by different bodies, collected by different means, and paid by different parties. Importantly, your loveelectric salary sacrifice lease includes VED as part of the monthly cost — you won't receive a road tax bill separately.

Do used electric cars have the same BiK rate as new ones?

Yes. The BiK percentage is determined by the car's CO₂ emissions, not its age. A used EV qualifies for exactly the same 4% rate in 2026/27 as a brand-new model. The BiK amount you pay will differ, however, because it's calculated on the car's original P11D value (its list price when new) — not its current used market value. A lower-P11D used EV therefore results in a lower BiK tax bill, which can make used salary sacrifice vehicles very attractive. Through loveelectric, you can access both new and used EVs, all benefiting from the same low BiK rates.

How does BiK work on a salary sacrifice car specifically?

In a salary sacrifice arrangement, you give up part of your gross salary in exchange for a car. That sacrifice reduces your taxable income, saving you income tax and NI. You then pay BiK tax on the benefit of having the car available for private use. The BiK tax is small (4% on an EV), while the income tax and NI saving on the sacrificed amount is much larger — creating a significant net saving. Your employer reports the BiK value to HMRC, which adjusts your tax code to collect the BiK tax through PAYE. You don't need to do anything yourself.

What happens to my BiK rate during a multi-year lease?

Your BiK rate changes each tax year in line with HMRC's published schedule — it is not locked at the rate when you signed the agreement. However, the P11D value is fixed at the start of the lease. So the BiK amount will increase slightly each year as the rate rises, but only on the same fixed P11D base figure. For a 48-month lease starting in 2026/27, you'll pay the 4% rate in year one, 5% in year two, 7% in year three, and 9% in year four — still significantly lower than any petrol or diesel equivalent throughout.

Is there any BiK on the loveelectric Charge Card?

The loveelectric Charge Card lets drivers access up to 60% off public and home charging costs via salary sacrifice. Where the Charge Card is provided as part of the salary sacrifice arrangement, the charging benefit may attract a separate BiK consideration depending on how it is structured. Speak to your employer or our team for the specifics of how your arrangement is set up — we're always happy to clarify.

Next Steps: Get an EV via Salary Sacrifice

EV BiK sits at 4% in 2026/27 — among the lowest of any taxable benefit in the UK tax system. Salary sacrifice amplifies the saving further, reducing your income tax and NI contributions at the same time. The combined result is savings of 30–55% compared to leasing the same car privately, with insurance, servicing, tyres, breakdown cover, and road tax all bundled in.

Rates rise to 5% in 2027/28 and 7% the year after. The window for the lowest-ever EV BiK rates has already started to narrow. If you're considering salary sacrifice, sooner is better.

loveelectric is a B Corp certified salary sacrifice provider with a 102.0 impact score. Our Zero Risk Guarantee means you're supported if your circumstances change. Our Charge Card saves drivers up to 60% on charging, both at home and on public networks, via salary sacrifice too.

Browse electric cars →

Not sure which scheme is right for you? See our guide to the best salary sacrifice car scheme providers — or read our full guide to salary sacrifice to understand how the scheme works from start to finish.