Need to know:
- Car schemes have evolved in recent years, with electric vehicles avaiable via salary sacrifice now a common choice
- Some organisations continue to maintain fleets based on job level and need, but higher taxes are coming
- Used electric cars are helping to make salary sacrifice schemes even more affordable
The last few years have seen a significant shift in employer car schemes, with government strategy, underpinned by the tax regime, sparking a move towards salary sacrifice car schemes, and away from employer-funded company plans. This is driven by the push towards electric vehicles (EVs), as the UK prepares for the ban on new diesel and petrol models, due to come into force in 2030.
Affordable car schemes
The advantages of salary sacrifice arrangements, where employees give up some of their pre-tax salary in exchange for use of a car and both employees and the employer see significant tax and national insurance (NI) savings, means organisations can now offer EVs at a much more affordable price than was the case a few years ago.
Lee Murphy, managing director at The Accountancy Partnership, says: “Coupled with this, EVs are becoming more favourable because they attract a much lower benefit-in-kind rate under UK tax rules. For the year 2025/26, company cars that are fully electric carry a rate of just 3%. This means that it’s far more tax-efficient for businesses to offer company cars that are fully electric to their employees.”
The EV market received a further boost in 2024, with the government’s decision to reduce company car tax to zero. Andrew Leece, managing director of Fleet Evolution, says: “There were two immediate impacts. Firstly, suppliers such as Tesla turned on supply to the UK in a big way and, secondly, it made EVs accessible to more. The scheme was no longer aimed at the super-rich but made sense for all employees.”
Additional benefits
At the same time, schemes themselves have been enhanced with wraparound services, with the provision of bundled insurance, maintenance and management of early terminations all now common. Phil Curtis, managing director of Avantus Employee Benefits, part of the Ciphr Group, says: “This has helped overcome the earlier objections from employers. We’re reaching the point where employers of a certain size are expected to have some form of car scheme in place as part of their employee benefits package.”
Against this backdrop, many employers that have traditionally run a fleet of cars are questioning whether this is the right model. Cheryl Clements, head of business development at Tusker, explains: “Some employees have cars as a perk, perhaps because it’s expected at their pay level or grade.
“Many employers instead are considering providing a cash allowance for these employees to obtain their car through salary sacrifice. In this way, they are offering employees the same look and feel, but the employer doesn’t need the resources to manage a fleet. A blended solution approach of both job-need fleet and all-employee salary sacrifice car schemes is working well for a number of employers.”
Taxation changes
Further changes, though, are likely to make traditional schemes less attractive. Lash Saranna, co-founder and CEO of EZoo, explains: “HM Treasury has said that it will amend employee car ownership schemes to tighten taxation on the personal use of company cars from next financial year,. It’s pushing greater numbers of businesses away from offering company cars as a benefit, instead providing the credit mechanism for employees to lease an electric vehicle at reduced rates.”
Research by Tusker confirms the direction of travel; according to its Tusker driver survey report 2025 published in September 2025, 74% of drivers who do not take part in a Tusker salary sacrifice car scheme and do not drive an EV believe they will be doing so in the next four years.
Other developments are also helping the move towards EVs. For example, the emergence of used EVs has helped to reduce costs further, says Ish Nabi, salary exchange business development manager at Pink Salary Exchange. “This has been particularly valuable for employees in lower tax brackets or on stricter budgets,” he says.
EVs align with wider corporate values and sustainability commitments, which can help with attracting staff and winning new business. Sam Jones, payroll advisory team leader at the Chartered Institute of Payroll Professionals, adds: “Helping employees access low-cost, zero-emission transport supports [en employer’s] efforts to reduce its environmental impact and contributes to lowering carbon emissions.”
In the long run, it is likely that EVs will become the default option in most schemes, explains Jo Werker, CEO at Boostworks. “We may also see a broader shift from car to mobility benefits, including access to public transport, e-bikes or ride-share credits, especially in urban settings,” she says.
