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Electric Car Tax Benefits

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One of the best parts of leasing with salary sacrifice is how much more affordable having a electric car can be, with drivers able to save up to 60% every month when they’re signed up to loveelectric. A key component that makes having an electric car so much more affordable is the fact that there are a multitude of tax incentives that it can offer. This article will give a brief overview of all the ways you could save on tax with an electric car.

Road tax

The official name for road tax is Vehicle Excise Duty (VED), however, it’s also often referred to as road tax. VED is something drivers have to pay for each year, and the money goes towards road work and maintenance. 

On average, the amount of VED paid in the UK is £155 per vehicle every year, however, this is expected to increase in April of 2022 at the start of the next financial year due to inflation. The amount of road tax you pay is dependent on a couple of factors, like what kind of car you have, how much CO2 your vehicle emits and how old it is. We recommend checking out this resource from HMRC to learn more.

Do electric cars pay road tax?

As of 2020, electric vehicles are exempt from road tax, so if you drive an EV you won’t need to pay a single penny in road tax. The reason behind this is that the amount of road tax due is determined by how much CO2 your vehicle emits and electric vehicles don’t produce any CO2 emissions whatsoever and are therefore exempt! (HMRC)

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Salary sacrifice

A great way to save even more with an electric car is by using a salary sacrifice scheme, you could save up to 60% of the cost of your EV if you’re signed up to loveelectric, as there are so many potential tax savings (all HMRC approved!).

What is salary sacrifice?

So, what is salary sacrifice and how does it work? Salary sacrifice is a scheme where an employee gives up a portion of their salary and in return, they receive a benefit. You might have heard about salary sacrifice in the context of pensions, childcare vouchers and the cycle-to-work scheme; however, you can also use it to get an electric car for a more affordable price. All that’s needed is for your employer to sign up for free here.

Do you pay tax on salary sacrifice cars?

The short answer is yes, signing up to a salary sacrifice scheme will still mean you pay tax. However, the amount you will have to pay is significantly smaller than if you purchase the car or lease it using a PCH or BHC lease (read more about the differences here). If you sign up with the loveelectric salary sacrifice scheme, you’ll end up saving more than you would when using standard leasing options due to our triple tax saving.

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Triple Tax Saving


  • VAT

VAT is the acronym for Value Added Tax, and it’s something you pay for all consumer goods and services. By using a salary sacrifice to lease an electric car, you won’t need to pay VAT and this tax is passed onto your employer, who can reclaim back 10% of the VAT cost from the government.  


  • Income Tax

Just like the name suggests, income tax is a tax on your income and the amount you pay is based on how much you earn. Depending on how much you make per month, you could be placed in a couple of different tax brackets. (Read more about this on the HMRC website) This higher income you have, the more tax you have to pay, so by forgoing a small portion of your salary and in return of getting a new electric car, you’ll pay less in income tax. 


  • NIC

Like income tax, your National Insurance Contributions (NIC) are based on how much you earn. NIC is used to pay for benefits like healthcare, social care and pensions. If you’re signed up to the loveelectric salary sacrifice scheme, you’d forgo a portion of your salary every month in exchange for having the electric car, which would result in a lower salary to pay National Insurance contributions for.


Employers NIC

It’s not just employees that can save money with a salary sacrifice scheme! As employers also have to pay NI, having their employers earn slightly less in return for the electric car will mean they too save money.

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Benefit In Kind tax electric cars 

Benefit in Kind (BIK) is a term you may have come across before, essentially it’s a tax on a benefit that you receive related to your employment. This benefit does not have to be limited to being something you only use within business hours. 

If you have a car through your employer then no matter what kind of car it is, you have to pay BIK tax to HMRC. The amount of BIK tax you have to pay is calculated by taking a percentage of the P11D value (which is the list price of the car), this percentage will be based on the levels of CO2 emissions from the car and the more CO2 it emits, the higher the tax will be. As EVs don’t emit any CO2 the BIK rate is very low, sitting at only 1% until the next financial year, where it will increase to 2% and remain at that rate until 2025.   

 How much could I save? 

Here are some examples of how much you could save on a brand new electric car every month when you’re signed up to the loveelectric salary sacrifice scheme. 

Last Updated: 13 June 2022


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