Salary sacrifice is not just for pensions. Two of the most popular non-pension salary sacrifice schemes let you lease an electric car or get a bike at a significant tax advantage. This guide explains how both work and whether they are worth it for your situation.
How salary sacrifice works (quick recap)
In a salary sacrifice arrangement, you give up part of your gross pay in exchange for a non-cash benefit. Because the sacrifice reduces your gross salary, you pay less income tax and National Insurance. Your employer may also save on Employer NI — some pass this saving to you.
See our salary sacrifice pension guide for the full mechanics. The same principle applies to EVs and bikes.
Electric vehicle salary sacrifice
Under an EV salary sacrifice scheme, your employer leases an electric car and you pay for it through a reduction in your gross salary. The key tax benefit is the ultra-low Benefit in Kind (BIK) rate for electric cars.
BIK rates for electric cars 2026/27
The BIK rate for a fully electric car (0g/km CO₂) is just 3% for 2026/27 (up from 2% in 2024/25). This means you pay tax on only 3% of the car's list price, rather than the full lease cost.
For example, an electric car with a list price of £40,000:
- BIK value: £40,000 × 3% = £1,200/year
- Tax on BIK (40% taxpayer): £480/year = £40/month
- Tax on BIK (20% taxpayer): £240/year = £20/month
Compare this to paying for the same car personally: monthly lease payments of £400+ come from net (after-tax) income. The salary sacrifice route is significantly cheaper.
The real saving
The total saving depends on your tax band. For a 40% taxpayer sacrificing £500/month gross for a £40,000 EV:
- Salary sacrifice: £500/month from gross pay
- What it would cost from net pay: £500 ÷ (1 − 0.42) ≈ £862/month
- Net cost after BIK tax: £500 sacrifice + £40 BIK tax = £540 effective monthly cost
- Saving vs paying personally: approximately £320/month
The savings are real but vary by car price, lease term, and your marginal tax rate. Higher earners save more. Employees in the £100K trap zone can save even further because the salary sacrifice reduces adjusted net income, potentially restoring the Personal Allowance.
Things to consider
- Your salary must not fall below National Minimum Wage after the sacrifice. This limits the scheme for lower earners.
- Reduced pension contributions — if your pension is a percentage of gross pay, sacrificing salary reduces the base. Some employers compensate for this.
- Contract length — typical EV salary sacrifice leases are 2–4 years. If you leave your job, you may need to take over the lease personally or pay an early termination fee.
- Insurance is usually included — most schemes bundle insurance, maintenance, and breakdown cover into the monthly cost.
- BIK rates are rising — 3% in 2026/27, rising to 4% in 2027/28 and 5% in 2028/29. Still far below petrol/diesel BIK rates (typically 25–37%).
Cycle to Work scheme
The Cycle to Work scheme lets you get a bike and accessories through salary sacrifice. Your employer buys the equipment and leases it to you via a monthly deduction from your gross pay — typically over 12 months.
How much do you save?
The saving is the tax and NI you avoid on the sacrificed amount. For a £1,200 bike over 12 months:
- Monthly sacrifice: £100 from gross pay
- Basic rate taxpayer (28% combined): save £336 over 12 months — effective cost £864
- Higher rate taxpayer (42% combined): save £504 over 12 months — effective cost £696
After the hire period ends, your employer will offer to sell you the bike. HMRC's guidelines suggest a "fair market value" transfer (often 3–7% of original price for bikes used over 3 years), though many employers transfer for free or a nominal fee.
What you can include
- The bike itself (any type — road, electric, folding, cargo)
- Safety equipment (helmet, lights, locks, hi-vis)
- Standard accessories (mudguards, panniers, bike computer)
There is no official price cap (the previous £1,000 limit was removed in 2019), though individual employers may set their own. Electric bikes (e-bikes) are eligible and increasingly popular — they can cost £2,000– £5,000, making the tax saving substantial.
Can I combine these with pension sacrifice?
Yes. You can have multiple salary sacrifice arrangements running simultaneously — pension, EV, and bike — as long as your post- sacrifice salary remains above National Minimum Wage. The tax savings stack: each arrangement reduces your gross pay before tax and NI are calculated.
Model the impact on your take-home
Use the salary sacrifice calculator to see how a given monthly sacrifice amount affects your take-home pay. While designed for pension contributions, the NI and tax saving mechanics are identical — enter the monthly sacrifice amount as a pension contribution to see your new net pay.