Is a company car still an attractive benefit in 2026?
Image by Lee Rosario from Pixabay
Employee benefits have become an important element of the renumeration packages offered by employers in recent years, as employee expectations and demands have changed and employers are now prioritising the health and wellbeing of their workforce. Salary sacrifice car schemes have become one of the most popular types of employee benefits, particularly schemes to support an employee’s transition to driving electric vehicles (EVs). Ultimately, these have the biggest influence on lifestyles and the work-life balance, however, recent taxation changes have altered the landscape in terms of this new variation in company car provision, and it is a timely juncture at which to reassess their appeal.
What is a salary sacrifice car scheme?
Traditionally, the model for company cars was to offer them to employees who needed them for regular business travel, or to personnel who had reached a certain level of seniority within the organisation. Company cars were sourced and funded by the business, and were often seen as exclusive and something of a status symbol. The difference with a salary sacrifice car scheme, such as the next generation scheme offered by Pink Salary Exchange, is that such schemes are fully inclusive, and are an option open to every employee in an organisation. Hence, employers can use them to promote inclusivity, improve loyalty and boost morale and productivity.
Salary sacrifice car schemes work in terms of the employee agreeing to sacrifice a portion of their gross salary on a monthly basis in return for the lease terms on a brand-new zero-emission EV. The employee benefits by driving a new vehicle with reduced repair and maintenance costs, and the very latest safety, performance, efficiency and infotainment technology. Financially, the employee benefits from paying less income tax and national insurance on their gross salary and lower BiK rates and fuel costs on EVs. The employer also benefits from paying reduced national insurance contributions for each employee on the scheme, reducing their carbon footprint, increased compliance and lower fleet costs.
What were the Autumn Budget announcements which impacted on salary sacrifice car schemes?
In April 2025 EV drivers were required to pay road tax for the first time. While this was always likely to happen, it was the first sign that the Government was seeking to generate additional tax revenue from EV drivers.
- EV excise duty – Dubbed the ‘eVED’, from April 2028 EV drivers will have to pay a mileage-based excise duty supplement in addition to their standard excise duty payment. This will be 3 pence per mile for battery-operated EVs and 1.5 pence per mile for plug-in hybrid vehicles.
- Expensive car supplement – Dubbed the ‘luxury car tax’, the threshold for EVs to qualify for this supplement has been increased from £40,000 to £50,000 from April 2026.
Although the eVED is seen as a blow to EV drivers, it is partially offset by the relaxation of the luxury car tax threshold. For EV drivers on salary sacrifice car schemes, they can still enjoy the cheaper running costs of charging an EV, and it is noted that the Chancellor maintained the 20% VAT rate on electricity generated at public chargers, meaning it is much cheaper to charge an EV at home, for those who can do so.
Why is a company car still an attractive benefit in 2026
Despite the budget changes, there remains great benefits to company car schemes in 2026, particularly salary sacrifice car schemes. These include:
- Benefit-in-Kind – BiK tax rates continue to incentivise EV adoption. For the 2025/26 tax year this is 3% for EV drivers, rising to 9% by 2030. Yet, the BiK tax rate for petrol and diesel vehicles could be more than 20% over the same period.
- Vehicle excise duty – Although EV drivers will now pay road tax like all other road users, driving an EV is still tax-efficient, compared to driving petrol or diesel vehicles.
- Budgeting – A salary sacrifice car scheme provides a fixed figure for the monthly motoring costs of employees which is easy to budget for and plan around, whilst remaining flexible enough to allow for changes in personal circumstances.
- Accounts – For businesses, leasing company cars through salary sacrifice means the business has no initial capital expenditure, no depreciating assets on its books, no service and maintenance costs, and no disposal costs at the end of the lease.
Is a company car still an attractive benefit in 2026? Absolutely! Businesses should continue to consider car finance for company cars in 2026 through employee benefits such as a salary sacrifice car scheme.