Benefit in Kind Electric Cars: How BIK Works With EVs

Electric cars benefit from one of the lowest Benefit in Kind (BIK) rates in the UK tax system. It’s a deliberate incentive, and it’s the reason EVs are often far cheaper as company cars than their petrol or diesel equivalents.

In this guide, we break down how EV BIK is calculated, how the rates are changing over the next few years, and what that means for your monthly cost through salary sacrifice. 

If tax talk tends to make your brain go fuzzy, this is the explainer that keeps it clear.

What is Benefit in Kind (BIK)?

Benefit in Kind (BIK) is the tax you pay on perks your employer provides in addition to your salary. 

If you receive something valuable that isn’t cash, like a company car or private medical insurance, HMRC treats it as part of your overall compensation and taxes it accordingly.

Common benefits subject to BIK include:

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

The government levies BIK tax to ensure employees pay tax on their complete compensation package, not just their cash salary. For company cars, BIK tax applies as soon as you use the vehicle for private journeys, including your daily commute.

Who pays BIK tax?

BIK tax is shared between the employee and the employer:

• Employees pay Income Tax on the BIK value at their marginal rate (20%, 40% or 45%).
• Employers pay Class 1A National Insurance at 15% on the same BIK value.
  
  

For most people, the tax is deducted automatically each month through payroll, so you don’t need to do anything manually.

How is Benefit in Kind calculated for electric cars?

BIK for company cars is calculated based on two main factors: 

• the car's list price (P11D value) 
• its CO₂ emissions

The P11D value includes the car’s list price, VAT, delivery fees, and any factory-fitted options. It excludes first-registration fees and road tax.

HMRC then applies a BIK percentage based on the car’s emissions. Because electric vehicles have zero tailpipe emissions, they sit in the lowest possible BIK band, which is why their tax cost is so much lower than petrol, diesel, or even hybrid cars.

The calculation itself is straightforward:

P11D value × BIK percentage × Income tax rate = Annual BIK tax

BIK rates for electric cars (2025 - 2030)

The UK government has set Benefit in Kind rates for zero-emission vehicles all the way to 2030. That long-term clarity is helpful for anyone thinking about taking an electric car through salary sacrifice or a company car scheme.

Current and future EV BIK rates are:

• 2025/26: 3%
• 2026/27: 4%
• 2027/28: 5%
• 2028/29: 7%
• 2029/30: 9%

These increases are intentionally gradual. The aim is to keep electric cars highly tax-efficient for the rest of the decade, while slowly moving BIK rates closer to other vehicle types. From 2025 to 2028, the rate increases by 1% a year, before rising in 2% steps in 2028/29 and 2029/30, where it stays capped at 9%. That means now is the best time to go electric through a company scheme. 

Learn more about the tax benefits of EV schemes for employees.

How do EV rates compare to petrol and diesel?

The difference is dramatic. While EVs enjoy BIK rates of 3-9% through 2030, petrol and diesel cars face rates ranging from 25% to 37% depending on emissions, with the maximum rate increasing to 39% by 2029/30.

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Even with the increase to 9% in 2029/30, electric vehicles will still have BIK rates approximately three times lower than efficient petrol or diesel cars, and more than four times lower than high-emission vehicles.

Why the gradual increase for EVs?

The government's strategy reflects careful policy-making. 

The 1% annual increases through to 2028, followed by 2% increases in 2028/29 and 2029/30, avoid sudden "cliff edges" that could destabilise the market. 

This approach maintains compelling EV incentives while recognising the growing maturity of the electric vehicle market. Even at 9% in 2029/30, the rates remain substantially below petrol and diesel alternatives, ensuring EVs continue as the most tax-efficient choice for company car drivers.

How Benefit in Kind affects EV affordability

BIK tax directly determines how much you pay each month for your company car. The lower the BIK percentage, the less tax deducted from your salary.

Let's see how this works across different income tax bands for an electric car with a P11D value of £40,000 at the 2025/26 BIK rate of 3%:

BIK value of electric vehivle: £40,000 × 3% = £1,200 per year

Tax paid by income bracket for an EV:

• Basic rate taxpayer (20%): £1,200 × 20% = £240 per year (£20 per month)
• Higher rate taxpayer (40%): £1,200 × 40% = £480 per year (£40 per month)
• Additional rate taxpayer (45%): £1,200 × 45% = £540 per year (£45 per month)

Compare this to the same £40,000 car if it were petrol-powered with a BIK rate of 30%:

BIK value of petrol car: £40,000 × 30% = £12,000 per year

Tax paid by income bracket for a petrol car:

• Basic rate taxpayer (20%): £12,000 × 20% = £2,400 per year (£200 per month)
• Higher rate taxpayer (40%): £12,000 × 40% = £4,800 per year (£400 per month)
• Additional rate taxpayer (45%): £12,000 × 45% = £5,400 per year (£450 per month)

The savings are there for the taking. A higher-rate taxpayer would save £360 per month (£4,320 annually) simply by choosing an electric car instead.

BIK and salary sacrifice: how do they work together?

Salary sacrifice and Benefit in Kind are often mentioned in the same breath, but they’re two separate pieces of the puzzle. 

You pay one because the car comes through your employer (BIK), and you save through the other (salary sacrifice).

Salary sacrifice reduces the cost of the car itself. You give up part of your gross salary in exchange for the car, which lowers your Income Tax and National Insurance. This is where most of your monthly savings come from.

Benefit in Kind is the small tax you pay for using the car privately.

All company cars attract BIK, but because EVs sit at just 3% (rising slowly over time), the tax is tiny compared with petrol or diesel models.

The combined power of a low BIK rate & salary sacrifice savings

When you combine the low BIK rates on EVs with the pre-tax savings from salary sacrifice, electric vehicles become exceptionally affordable. You benefit twice: once from saving income tax and National Insurance on your sacrificed salary, and again from paying minimal BIK tax on the car itself.

Example: Lease a Renault 5 through loveelectric’s salary sacrifice scheme

Let's look at a worked example using a Renault 5 EV for an employee earning £55,000 per year through a 48-month salary sacrifice scheme with 8,000 annual miles:

Before salary sacrifice:

• Basic pay: £4,583/month
• Income tax: £927/month
• National Insurance: £259/month
• Net pay: £3,397/month

After salary sacrifice:

• Basic pay: £4,583/month
• Gross sacrifice: £442/month
• Revised salary: £4,142/month
• Income tax: £742/month (£185 saving)
• National Insurance: £248/month (£11 saving)
• BIK tax (3%): £18/month
• Total deductions: £1,008/month
• Net pay: £3,134/month

Actual cost to employee: £263/month

The result: A 40% saving compared to the £442 gross sacrifice amount. The employee gets a brand-new electric Renault 5 for just £263 per month, including:

• Fully comprehensive car insurance
• Servicing and maintenance (including tyres)
• Road assistance and accident management
• All-online ordering with no credit check
• Delivered to your door

How loveelectric simplifies compliance for employers

As a salary sacrifice EV provider, loveelectric manages all BIK reporting and payroll integration, removing the administrative burden from employers. We provide:

• Detailed payroll reports with all deductions clearly calculated
• Reports delivered in advance of each new vehicle delivery
• HMRC-compliant documentation

Cost-neutral for employers: The scheme is structured so that VAT recovery (depends on company) and reduced National Insurance contributions offset the employer's costs. Companies gain a valuable employee benefit without adding to their expenses.

Minimal administration: loveelectric provides payroll reports provided in a simple format with salary deduction values clearly stated. That means finance teams can process everything quickly and accurately.

How much BIK would you pay on specific electric cars?

Let's examine the actual BIK costs for popular EV models available through loveelectric, using realistic P11D values. These examples show annual and monthly BIK payments across different tax bands at the 2025/26 rate of 3%.

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The comparison that proves EVs value

To put these figures in perspective, a similarly priced petrol BMW 3 Series (P11D £52,000) with a typical BIK rate of 34% would cost:

• Higher rate taxpayer: £52,000 × 34% × 40% = £7,072 per year (£589/month)

The Tesla Model Y at £52/month BIK saves £537 per month compared to the petrol alternative - over £6,400 annually.

These low BIK payments demonstrate exactly why salary sacrifice electric car prices make EVs so accessible. When you factor in the additional income tax and National Insurance savings from salary sacrifice, the total monthly cost becomes remarkably affordable.

What EV BIK tax rates mean for employers

Many employers wonder about the cost implications of offering electric vehicles through salary sacrifice. The reality is, a salary sacrifice scheme should be totally cost-neutral for the business implementing it. 

Employer National Insurance costs

Employers pay Class 1A National Insurance contributions on the BIK value at 15%. Because BIK values for EVs are so low, these contributions are minimal and never actually affect the bottom line of the business.

Example: For the Renault 5 with a BIK value of £840 per year:

• Employer Class 1A NI: £840 × 15% = £126 per year (£10.50 per month)

Compare this to a petrol equivalent with a BIK value of £7,000:

• Employer Class 1A NI: £7,000 × 15% = £1,050 per year (£87.50 per month)

A cost-neutral employee benefit

When structured correctly, such as with loveelectric’s salary sacrifice scheme, the benefit is cost-neutral for employers:

• VAT recovery: Employers can recover VAT on rental costs
• Reduced employer National Insurance: Lower salary means reduced NI contributions on earnings
• Cost neutral: loveelectric’s commission is equal to the employer’s NIC savings, meaning businesses are never out of pocket.

Additional benefits of an EV salary sacrifice scheme:

• Strengthens your sustainability credentials and supports net zero commitments
• Enhances employee attraction and retention without salary increases
• Positions your organisation as forward-thinking and environmentally responsible
• Provides genuine financial value to employees

loveelectric's support for employers

loveelectric offers comprehensive support to make implementation seamless:

• Zero Risk Guarantee: Protects employers from financial penalties if employees terminate leases early. This Day 1 protection includes coverage for resignation, dismissal, and redundancy, with reimbursement within 10 days of approval.
• Rollout toolkit: Complete resources for introducing the scheme to your workforce
• Dedicated account management: Expert support throughout implementation
• HMRC compliance: All documentation and reporting handled professionally

For HR and Finance teams researching electric car company tax benefits, this combination of cost-neutrality and comprehensive support makes the decision straightforward.

Future predictions: will EVs remain tax efficient?

Despite the planned BIK rate increases, electric vehicles will remain by far the most tax-efficient company car choice for years to come. Let’s not forget that new petrol and diesel cars are due to be banned in 2030, making EVs the default choice for anyone wanting a new vehicle. 

The rates in context

Even at 5% in 2027/28, EV BIK rates will be five times lower than efficient petrol or diesel cars and up to seven times lower than high-emission vehicles. The government's gradual approach ensures:

• No sudden tax shocks that could discourage EV adoption
• Continued strong financial incentives for electric vehicles
• Long term certainty for businesses and employees planning ahead
• Alignment with the UK's net zero commitments

Beyond 2030

While official rates beyond 2030 haven't been confirmed, the government has indicated continued commitment to maintaining EV tax advantages. The 2024 Autumn Statement extended favourable treatment, signalling ongoing policy support.

Potential changes to monitor:

• Road pricing mechanisms as fuel duty revenues decline
• Updated VED (road tax) structures
• Further refinements to BIK bands

loveelectric's commitment: We continuously monitor policy developments and keep our clients informed of changes. Our scheme adapts to new regulations, ensuring compliance while maximising employee savings. Whether you're considering how salary sacrifice works or evaluating if EV salary sacrifice is worth it, we provide up-to-date guidance.

The long-term case for EVs

Beyond big tax savings, electric vehicles offer:

• Lower running costs (electricity vs petrol/diesel)
• Reduced maintenance requirements
• Zero tailpipe emissions
• Access to clean air zones without charges
• Eligibility for workplace charging benefits (often tax-free)

The combination of today's exceptionally low BIK rates and tomorrow's continued advantages makes now an excellent time to switch to electric.

Get the car you want, for a price you’ll love with loveelectric

Ready to discover how much you could save with an electric vehicle?

With loveelectric's salary sacrifice scheme, you benefit from:

• 30-60% savings compared to personal leasing
• New and used EVs available to suit every budget
• Comprehensive insurance included through Aviva
• Full maintenance coverage including servicing and tyres
• No credit checks and hassle-free all-online ordering
• Charge Card for convenient access to public charging networks

Whether you're an employee looking to get behind the wheel of a new EV or an employer wanting to offer this valuable benefit, we make it simple.

Get started today:

• Employees: Check your eligibility and browse available cars
• Employers: Learn about the scheme or make an enquiry
• Don't have a scheme yet? Refer your company and we'll help set it up

Looking for the best salary sacrifice car scheme or wondering how to get a car on salary sacrifice? loveelectric combines the lowest BIK rates with straightforward salary sacrifice savings to deliver exceptional value.

Benefit in Kind on Electric Cars FAQs

How does BIK work for electric company cars?

BIK (Benefit in Kind) tax applies when you use a company car for private journeys, including commuting. For electric cars, the tax is calculated by multiplying the car's P11D value (list price including VAT and extras) by the BIK percentage rate (currently 3% for zero-emission vehicles in 2025/26), then by your personal income tax rate (20%, 40%, or 45%).

The resulting amount is deducted from your monthly salary. Because electric vehicles produce zero CO₂ emissions, they qualify for the lowest BIK rates available, making them far more affordable than petrol or diesel alternatives.

Are electric cars exempt from Benefit in Kind tax?

No, electric cars are not exempt from BIK tax, but they enjoy exceptionally low rates. The current BIK rate for zero-emission vehicles is 3% for 2025/26, increasing to 4% in 2026/27 and 5% in 2027/28.

While EVs were briefly taxed at 0% in 2020/21 and 1% in 2021/22, those exemption rates have ended. However, the current rates remain dramatically lower than petrol or diesel cars (which range from 25-37%), delivering substantial savings even though tax is still payable.

How does BIK affect electric car salary sacrifice schemes?

BIK and salary sacrifice work together to make EVs remarkably affordable. With salary sacrifice, you exchange part of your gross salary for an electric car, saving income tax and National Insurance on the sacrificed amount. You then pay BIK tax on the car's benefit value.

Because EVs have such low BIK rates, the BIK tax you pay back is minimal compared to your savings. For example, you might sacrifice £475/month gross but save £193/month in tax and NI, while only paying £21/month in BIK tax, giving you a net cost of £282/month for a brand-new electric car.

Is BIK cheaper for electric cars than petrol or diesel?

Absolutely. BIK for electric cars is substantially cheaper. At the 2025/26 rate of 3%, an EV with a P11D value of £40,000 has a BIK value of just £1,200 per year. A petrol car with the same list price but typical emissions would have a BIK rate around 30%, creating a BIK value of £12,000 - ten times higher.

This translates to real monthly savings. A higher-rate taxpayer would pay £40/month BIK on the electric car versus £400/month on the petrol equivalent – a saving of £360 every month. Even with planned increases through 2028, EVs will remain the most BIK-efficient choice by a significant margin.

Do used electric cars have the same BIK rate?

Yes, used electric cars qualify for the same BIK rates as new ones, provided they produce zero emissions. The BIK percentage is determined by CO₂ emissions, not the age of the vehicle. A used EV will be taxed at 3% for 2025/26, just like a brand-new model.

However, the BIK tax amount will differ because it's calculated on the P11D value (original list price when new). A used EV's BIK is based on its original list price, not its current used value. This means lower-priced EVs – whether new or used – result in lower BIK tax payments.

Through loveelectric, you can access both new and used electric vehicles, all benefiting from the same low BIK rates. This flexibility helps you find the right balance between vehicle specification and monthly cost.