What is company car Benefit-in-Kind (BiK)?
Benefit-in-Kind (BiK) is a tax applied when an employee receives a benefit from their employer that has monetary value — such as a company car that can be used for personal journeys.
With a traditional company car arrangement, the employer provides the vehicle, and the employee pays tax based on the car’s BiK value.
How BiK is calculated
- Car’s list price (P11D value)
- CO₂ emissions and fuel type
- BiK percentage set by HMRC
- Employee’s income tax band
The higher the emissions and list price, the higher the BiK tax paid by the employee.
What is salary sacrifice?
Salary sacrifice is an agreement where an employee gives up part of their gross salary in exchange for a benefit, such as a company car.
Unlike traditional BiK-only arrangements, salary sacrifice reduces the employee’s contractual salary, which in turn lowers taxable income.
Key differences from traditional company cars
- Cost deducted from gross salary
- Reduces income tax and National Insurance
- Often bundled with insurance and maintenance
BiK tax still applies to salary sacrifice cars, but it is calculated alongside the reduced salary.
How tax is calculated for each
Understanding how tax is applied highlights why salary sacrifice is often more efficient.
Traditional company car BiK
- Employee pays BiK tax on the car
- No reduction in gross salary
- Income tax and NI remain unchanged
Salary sacrifice car
- Employee sacrifices part of gross salary
- Lower income tax and NI
- BiK tax still applies, but on a lower base
The combination of reduced salary plus low BiK rates (especially for EVs) is what creates significant savings.
Electric vehicles and tax efficiency
Electric vehicles (EVs) are where the difference between salary sacrifice and traditional BiK becomes most pronounced.
Why EVs benefit most
- Extremely low BiK rates compared to petrol and diesel
- No fuel benefit charges
- Ideal for salary sacrifice structures
For many employees, an electric car via salary sacrifice can cost significantly less per month than a traditional company car or personal lease.
Which option is better in 2026?
The best option depends on income level, vehicle choice, and employer scheme structure.
Salary sacrifice is usually better if:
- You are a higher-rate or additional-rate taxpayer
- You are choosing an electric vehicle
- You want predictable, all-inclusive costs
Traditional company car BiK may suit if:
- Your employer does not offer salary sacrifice
- You don’t want a reduction in contractual salary
- You’re using a vehicle purely for business travel
In most cases involving electric vehicles, salary sacrifice delivers the greatest tax efficiency.
Frequently Asked Questions
Is salary sacrifice better than a traditional company car?
In many cases, yes — especially for electric vehicles and higher-rate taxpayers.
Do I still pay BiK tax with salary sacrifice?
Yes — BiK still applies, but the overall tax impact is usually lower.
Can salary sacrifice reduce National Insurance?
Yes — because the salary reduction happens before NI is calculated.
Is salary sacrifice available to all employees?
No — it depends on whether your employer offers a scheme.
Are petrol and diesel cars suitable for salary sacrifice?
They can be included, but tax savings are much lower than with EVs.
Disclaimer: BiK rates, salary sacrifice rules, and tax thresholds may change. This article is for general guidance only and does not constitute tax or financial advice. Always consult your employer or a qualified tax adviser.
