The economics of… Is a car salary sacrifice scheme worth it
Edition 2 · 10 August 2026 · figures dated below · next review 2027-04-06
The break-even sums behind salary-sacrifice car schemes for drivers on different incomes, mileages and living arrangements in 2026/27 — not whether to sign up.
- What actually changes when you sacrifice salary for a car
You agree to give up part of your gross salary, before tax and National Insurance (NI) are taken off, in exchange for the use of a car — usually with insurance, servicing and breakdown cover bundled in. Two things happen at once: you pay less income tax and NI, because your taxable pay is lower; and you start paying income tax on the car itself, as a benefit in kind. That benefit is calculated as the car's list price (its 'P11D value') multiplied by an 'appropriate percentage' HMRC sets according to CO2 emissions — electric cars sit on a far lower percentage than petrol or diesel ones.
- The sum that decides it
For any car, there's a monthly sacrifice amount below which the deal costs you more than just paying for the car out of taxed salary, and above which you come out ahead — before counting anything the scheme bundles in. It works out as:
Break-even sacrifice = (P11D value × appropriate % × your income tax rate ÷ 12) ÷ (your income tax rate + your employee NI rate)
In 2026/27, the appropriate percentage for a zero-emission car is 4% of list price (rising to 5% in 2027/28 and 7% in 2028/29, already legislated). Percentages for petrol and diesel cars are far higher and have been frozen at their 2024/25 level through to 2027/28, capped at 37% of list price. Income tax is 20% up to £50,270 a year (after a £12,570 personal allowance) and 40% up to £125,140. Employee NI is 8% on earnings up to £50,270 and 2% above that.
- Four households, worked through
Household Tax band Example car (list price) Appropriate % Extra tax on the benefit Break-even monthly sacrifice Homeowner, driveway, high-mileage commuter Basic rate (28% combined) Electric car, £35,000 4% £23/month £83/month Renter, no driveway, low-mileage user Higher rate (42% combined) Electric car, £35,000 4% £47/month £111/month Homeowner, driveway, high-mileage commuter Basic rate (28% combined) Petrol car, £24,000 30% £120/month £429/month Renter, no driveway, low-mileage user Higher rate (42% combined) High-CO2 diesel, £30,000 (at the 37% cap) 37% £370/month £881/month The pattern: for the electric examples, the break-even sacrifice is low, so almost any real EV scheme sacrifice clears it and the tax sum favours the scheme. For the petrol and diesel examples, the break-even sacrifice is much higher — close to, or above, what such a car might actually cost through a scheme — so the tax saving on the sacrifice can be largely or wholly cancelled out by the extra tax on the benefit.
- What narrows or widens the gap
- Your employer also stops paying Class 1 NI, at 15% above a £5,000 secondary threshold, on the salary you sacrifice. Some providers fold part of that saving into a cheaper headline price — worth asking what's included.
- Bundled insurance, servicing, tyres and breakdown cover are usually part of the deal, so a high-mileage driver gets more use out of them than a low-mileage one, whatever the tax sum says.
- Whether or not you have a driveway doesn't change any of the tax mechanics above — it changes the running-cost side of owning an EV, not the sacrifice sum itself.
- Two floors to check before signing anything
- Minimum wage floor: an employer cannot let a salary sacrifice arrangement take your cash pay below the National Living Wage.
- Pension floor: automatic-enrolment pension contributions (a minimum of 8% of qualifying earnings, at least 3% from your employer) are usually based on your pay after the sacrifice, so giving up salary can shrink your pension contributions too, unless your employer calculates pension on your pre-sacrifice pay.
- What would change these numbers
The zero-emission appropriate percentage rises from 4% to 5% on 6 April 2027, and to 7% in 2028/29 — both already legislated. Income tax and NI thresholds are frozen to 2027/28; anything beyond that depends on a future Budget. The employer NI rate and threshold could also change at a future Budget.
Sources
- Zero-emission company car appropriate percentage is 4% of list price in 2026/27, rising to 5% in 2027/28 and 7% in 2028/29; percentages for petrol and diesel cars are frozen at 2024/25 levels through 2027/28 and capped at 37%. — HMRC, gov.uk company car tax guidance
- Income tax 2026/27: personal allowance £12,570; basic rate 20% up to £50,270; higher rate 40% up to £125,140; additional rate 45% above £125,140. — HMRC, Income Tax rates and Personal Allowances
- Employee Class 1 National Insurance: 8% on earnings between £12,570 and £50,270 a year, 2% above that. — HMRC, National Insurance rates and categories
- Employer Class 1 National Insurance is 15% above a secondary threshold of £5,000 a year. — HMRC, rates and thresholds for employers 2026 to 2027
- A salary sacrifice arrangement must not take an employee's cash pay below the National Living Wage. — HMRC, salary sacrifice and the effects on PAYE
- Current National Living Wage and National Minimum Wage rates. — gov.uk, National Minimum Wage and National Living Wage rates
- Automatic enrolment minimum pension contribution is 8% of qualifying earnings, of which at least 3% must come from the employer. — MoneyHelper, automatic enrolment