By Cheryl Clements, head of business development, Tusker

 The Autumn Budget has finally landed, and salary sacrifice stole the spotlight. But with so much focus on reducing tax advantages for pensions, many workers are now worried about its impact on other salary sacrifice schemes, including car benefits. 

 Are they still compliant? Will my tax reductions be affected? Can employers  still adopt vehicle salary sacrifice for employees? And with so much unclear news, as well as complex political and technical jargon, it’s easy to get lost, confused and misunderstand what impact the Budget will have on  employee benefits.

 This article explains what the Budget means for car salary sacrifice – as, in short, not much has changed. A properly structured car salary sacrifice scheme is still fully HMRC-compliant, operates under its own rules, and is not affected by the new cap on pension salary sacrifice.

 As an employer, to help you reassure your people and answer their questions with confidence, we’ve set out the key points below.

What actually changed in the Budget?

 While salary sacrifice was one of the biggest headlines from the Budget, the focus was on pensions, not cars.

 From April 2029, the government is set to cap the amount of pension contribution that can go through salary sacrifice without being charged National Insurance (NI) fees at £2,000 per year. While contributions above that number will continue to be exempt from Income Tax, employers and employees will need to begin paying NI on anything above the cap. 

 This shift does have economic consequences for many, particularly higher contributors. But it is important however, not to assume that all salary sacrifice benefits have been impacted. 

 When it comes to car schemes, there are three key points to be aware of:

  • There have been no changes to the way salary sacrifice car schemes are taxed -  

 Cars provided through salary sacrifice will continue to be taxed under normal Benefit-in-Kind (BiK) rules. While BiK rates for electric vehicles will rise slowly over the coming years (3% in 2025/26 up to 9% by 2029/30), this has been publicly known for some time and is unrelated to the 2025 Budget.

  • There is however, a separate, near-future change that will impact EVs - 

 From April, 2028 the government has announced a new mileage-based road charge for electric vehicles, costing 3p per mile for fully electric cars and 1.5p per mile for plug-in hybrids. While this shift is not directly linked to salary sacrifice car schemes, their tax rules, or their HMRC compliance - it will slightly impact the cost of driving an EV, both within and outside of a salary sacrifice scheme.

 (It’s important to note that the government is in consultation until March 2026 about much of the detail surrounding how this will be managed, so there isn’t much information to share or plan for at this time.)

  • Support for EV infrastructure has been extended - 

 Again, while not directly associated with car salary sacrifice schemes, the government pledged ongoing grants and investment in EV charging infrastructure, as well as changes to the “expensive car supplement” which reduces VED costs on many mid-priced EVs. This helps support EV drivers in and outside of salary sacrifice schemes, whilst also tackling range anxiety.

So while the Budget did alter pension salary sacrifice and create slight adjustments for EV drivers, it has not removed or capped the tax advantages for salary sacrifice cars.

Section 239 - The reason vehicle salary sacrifice is treated differently (and why it matters)

 Salary sacrifice car schemes are unique, sitting under a different part of the tax rules to most other benefits.

 Normally, HMRC’s “optional remuneration arrangements” (OpRA) rules remove the tax and NI advantage of salary sacrifice. However, cars with CO₂ emissions of 75g/km or less are specifically excluded from OpRA, meaning they continue to be taxed under the standard Benefit-in-Kind (BiK) rules even when offered through salary sacrifice.

 Alongside this, Section 239 of ITEPA 2003 provides an additional protection for company cars. It covers payments and benefits connected to a taxable company vehicle – such as insurance, maintenance, vehicle tax and, for EVs, certain charging costs – and ensures these do not create extra separate benefit charges. Instead, they are treated as part of the overall car benefit.

 In more basic terms, this means:

  • Cars will continue to be taxed as normal company cars under BiK rules.
  • Multiple bundled running costs will not create an extra, separate benefit charge.
  • Properly structured car schemes comply with HMRC guidance and are treated differently from most other salary sacrifice products.

 Essentially, a long-standing combination of rules – the OpRA exemption for ultra-low emission vehicles and the treatment of connected costs under Section 239 – ensures that salary sacrifice car schemes operate differently from most other salary sacrifice benefits, and none of this has been changed by the Budget.

 What does your scheme need to be fully HMRC-compliant?

While the Budget hasn’t led to any changes for car salary sacrifice schemes, it remains vital to meet compliance standards. Otherwise, you could face significant penalties and liabilities including large fines, interest and legal risks. Here’s a simple list of what you need to get right:

  • Display salary changes  

 Employees enrolled in the scheme must have updated contracts that demonstrate a lower gross salary in exchange for the car - not just a deduction on their payslip. 

  • National Minimum Wage checks  

 Legally, employees cannot use salary sacrifice if it would reduce their pay below the National Minimum Wage (NMW). If this is the case, they are not eligible to join the scheme. When assessing eligibility, employers must also consider any other salary sacrifice arrangements the employee already participates in (such as childcare vouchers), as the combined effect could take their pay below the NMW.

  • Reassess your BiK reporting 

  Ensure that the car’s Benefit-in-Kind value is calculated using HMRC’s CO₂ tables and reported through payroll or P11D so that the right tax is paid.

  • Make sure bundled benefits are handled properly 

  Be aware that when items like insurance, servicing, vehicle tax (VED), and charging costs for electric cars are bundled together, they’re covered under Section 239 so they don’t unintentionally create extra taxable benefits.

  • Create clear rules for life events  

 Make sure that your agreement details what happens in unforeseen circumstances, such as an employee leaving, redundancy and maternity or long-term sick leave. This will help ensure that employees know what they are signing up for, and employers can avoid legal disputes and unnecessary admin. 

 A salary sacrifice scheme continues to be a great benefit for wellbeing and savings, but it has to be HMRC-compliant and fully legal, or it can create a lot of grievances. For more specifics, visit Employers — Tusker

 In summary

 While the Budget has changed some rules connected to pension salary sacrifice, car schemes remain largely unchanged. Thanks to the way HMRC’s OpRA rules interact with Section 239, a correctly structured car scheme:

  • remains fully HMRC-compliant,
  • continues to offer tax and NI savings on the sacrificed salary, and
  • still benefits from favourable BiK rates for electric and ultra-low emission vehicles.

So you and your employees can still reap all the benefits of savings, reduced carbon footprint and enhanced mobility.Ready to innovate your employee benefits with a vehicle salary sacrifice scheme? Tusker has you covered. 

 

 

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