Are Company Cars still a Good Benefit? A Guide to Salary Sacrifice Car Schemes

In today’s economic climate, controlling your business’s costs is more crucial than ever. Yet, it’s equally important to offer a competitive benefits package that not only attracts and retains top talent, but also aligns with your company’s goals. Striking the perfect balance between cost control and providing attractive company car benefits may seem challenging, but it’s actually easily achievable. Implementing a salary sacrifice car benefits scheme allows you to offer cost-effective vehicles while maximising HMRC tax advantages for both employers and employees.

A guide to salary sacrifice car schemes. 

The Evolution of Company Car Tax

Historically, company cars were considered a tax-free perk, but this changed with the introduction of Benefit in Kind (BiK) tax, which was applied on a sliding scale. As environmental sustainability became a priority for the UK Government, the tax system evolved to encourage the adoption of low-emission vehicles, discouraging the use of polluting, higher emission cars.

Over time, HMRC’s definition of a low-emission vehicle has changed. From 2002 to 2008, cars emitting 144g/km CO2 or less were considered low emission, with the threshold dropping to 120g/km CO2 from April 2008.

Making the Most of Car Benefit Tax Changes

In 2019, the government made a huge change to this tax. From April 2020-2021, fully electric vehicles saw their BiK rate drop from 16% to 0%. The rate has slowly increased – for 2025 this is 3% and it’ll rise slowly each year until 2030.

Ultra-Low Emission Vehicles (ULEVs) emitting up to 50g/km CO2 also benefit from reduced BiK rates that match EVs for those with an electric range of more than 130 miles.

These tax changes present a valuable opportunity for forward-thinking companies. By adopting a salary sacrifice car scheme, companies can reduce National Insurance (NI) contributions while enabling employees to drive new, green, and affordable cars with significantly lower tax burdens—all for a fixed monthly fee.

How the Company Car Benefit Calculation Works

The UK’s company car benefit system is structured to incentivise low-emission vehicle use. Both employee income tax and employer NICs are calculated based on:

The value of the car multiplied by a percentage determined by the car’s:

1. 1. CO2 emissions
   2. Fuel type
   3. Electric range

This calculation results in the employee’s BiK rate, which is then multiplied by their tax rate of 20%, 40%, or 45%.

For example, a petrol company car emitting 149g/km CO2 would attract a 35% BiK rate from April 2025. For a basic rate taxpayer with a car priced at £20,510, the annual tax would be £1,436 or £120 per month. In contrast, an equivalent electric vehicle with a 3% BiK rate would incur just £123 in annual tax, or about £10 per month.

This favourable tax position makes it feasible for your business to offer electric vehicles (EVs) at a lower cost than comparable petrol or diesel cars, along with ongoing savings in running costs.

Additional Benefits of a Salary Sacrifice Car Scheme

Tax savings are just one aspect of the advantages offered by a salary sacrifice car scheme. By partnering with Tusker, you gain access to a host of benefits:

• Competitive Manufacturer Discounts: Secure great value in a rising market.
• Comprehensive Support Package: Maintenance, servicing, breakdown cover, road tax, insurance, and more are included in the monthly fee.
• Complete Scheme Support: Save time and money with full administrative support.
• Unique Lifestyle Protection: Coverage for unexpected life events like resignation, parental leave, redundancy and long term sickness.
• Accessibility for All Staff: No deposit required, making it easy for everyone to participate, especially basic rate taxpayers.
• Reduced Business Mileage Costs: Lower electricity costs, especially on favourable tariffs, compared to petrol and diesel prices.
• Carbon Offsetting: Boost your company’s green credentials with carbon offsetting for all salary sacrifice cars, whether internal combustion or EV, reducing your overall carbon footprint.

Shifting your company car fleet from internal combustion engines to electric vehicles is an attractive and sustainable move. Collaborating with a car benefit provider who understands the intricacies of tax changes ensures you achieve the best engagement with your scheme, supporting your employee benefit, corporate social responsibility, and cost-saving goals.