eVED and Salary Sacrifice: Why Lower-Paid Workers Could Lose Out on Electric Car Schemes

There is a quiet revolution happening in the way British workers access electric vehicles, and it is not the good kind. While the government has been busy confirming new electric vehicle excise duty rules and adjusting company car tax rates, a significant side effect has been emerging in the background. Salary sacrifice schemes, long considered one of the most accessible routes for ordinary workers to get behind the wheel of an EV, are about to become considerably harder to use for those who need them most.

What Has Actually Happened

Autocar has reported that the confirmed introduction of eVED, the new vehicle excise duty applied to electric vehicles from April 2025, combined with related changes to benefit-in-kind (BIK) taxation on company cars, is creating a compounding problem for salary sacrifice schemes. These schemes allow employees to give up a portion of their gross salary in exchange for a leased electric car, with the tax and National Insurance savings often making the arrangement cheaper than a private lease.

The problem is straightforward but significant. When an employee's salary is reduced through a sacrifice arrangement, there is a legal floor below which their remaining pay cannot fall. Under the National Minimum Wage Act 1998, employers cannot allow a worker's effective hourly rate to drop below the applicable minimum wage threshold, even if the employee has technically consented to the sacrifice. For higher earners, this is rarely an issue. For workers on wages closer to the minimum, the monthly sacrifice amount required to cover a modern electric vehicle can push their effective take-home pay below that legal threshold.

The eVED charge, which applies from April 2025 to newly registered electric vehicles, adds to the overall cost of running those vehicles. That cost feeds through into lease rates, which in turn affects the sacrifice amount required each month. Higher lease costs mean larger monthly deductions, which means the floor is reached sooner, and more workers fall out of eligibility.

Why This Matters More Than It Might Seem

Salary sacrifice schemes were, for a period, one of the most genuinely egalitarian tools in the EV transition toolkit. A nurse, a warehouse supervisor, or an administrator on a reasonable but not lavish salary could access a brand-new electric vehicle at an effective cost that would be impossible through a conventional personal lease, precisely because the tax and NI savings were so substantial.

The BIK rate for electric company cars remains low compared to petrol or diesel equivalents, currently sitting at 3% for the 2025/26 tax year and rising only gradually in the years ahead. That low rate is what makes the scheme attractive. But the eVED charge, combined with rising lease costs driven by a more complex regulatory environment, is squeezing the economics at the lower end of the pay scale in a way that the BIK rate alone cannot offset.

Fleets are also facing increased administrative complexity. Employers running salary sacrifice schemes must now factor in the eVED liability, ensure their payroll systems correctly account for the minimum wage floor for every participating employee, and review eligibility more carefully than before. For large employers running schemes with hundreds of participants, this creates a meaningful compliance burden. For smaller businesses, it may tip the cost-benefit calculation against offering the scheme at all.

The Legal Framework Worth Understanding

The key legal protection here is the National Minimum Wage Act 1998 and the regulations made under it. The National Minimum Wage Regulations 2015 set out how salary sacrifice arrangements interact with minimum wage calculations. HMRC's guidance on this point is clear: if a salary sacrifice arrangement would cause a worker's pay to fall below the National Minimum Wage, the arrangement is unlawful and the employer remains liable for the shortfall.

This is not a theoretical risk. HMRC actively enforces minimum wage compliance, and employers who inadvertently allow sacrifice amounts to breach the threshold can face penalties and be required to make good the underpayment. The responsibility sits firmly with the employer, not the employee.

There is also a tax law dimension. The Income Tax (Earnings and Pensions) Act 2003 governs how salary sacrifice arrangements are treated for income tax purposes. Optional Remuneration Arrangements, the framework under which most modern salary sacrifice EV schemes operate, were tightened significantly in 2017 when HMRC introduced rules to prevent abuse. Electric vehicles retained favourable treatment under these rules specifically because of their low BIK rate, but any future changes to that rate or to the VED framework could alter the calculation further.

Drivers and employees considering these schemes should be aware that the tax treatment is based on the rules at the time the arrangement is entered into, but those rules can change. Seeking independent financial advice before committing to a multi-year salary sacrifice agreement is sensible, particularly given the pace of regulatory change in this space.

What Drivers and Employees Should Know

If you are considering a salary sacrifice scheme, or you are already in one and wondering whether the new rules affect you, there are several practical things worth understanding.

Check your effective pay carefully. Before signing any salary sacrifice agreement, ask your employer to confirm in writing that the deduction will not reduce your effective hourly rate below the National Minimum Wage. This is not just good practice, it is a legal requirement for your employer to have checked.

Understand the full cost. The monthly sacrifice figure is not the only number that matters. Ask for a full breakdown including the eVED liability, any insurance contributions, and what happens if you leave the scheme early. Early termination clauses in salary sacrifice arrangements can be expensive.

Ask about the review process. Good employers running these schemes should be reviewing eligibility annually, particularly as minimum wage rates change each April. If your salary increases or decreases, or if the vehicle's lease cost changes, the calculation needs to be revisited.

Do not assume the scheme is available to you. If you earn close to the minimum wage or are on a part-time contract, the arithmetic may simply not work. It is worth asking your HR or payroll team to run the numbers for your specific situation rather than assuming the scheme advertised to colleagues applies equally to you.

Consider the alternatives. For workers who fall outside salary sacrifice eligibility, the used EV market has become considerably more accessible. Separately, the government's EV grant scheme for new vehicles under certain price thresholds remains available through dealerships, though the qualifying criteria and available models shift regularly.

Looking Ahead

The introduction of eVED was always going to create ripple effects beyond the simple question of whether EV drivers pay road tax. The interaction with salary sacrifice schemes is one of the more consequential ripple effects, and it risks undermining one of the few mechanisms that was genuinely helping lower and middle-income workers access cleaner transport.

The trajectory of BIK rates for electric vehicles is already mapped out by HMRC for the next several years, rising incrementally but remaining well below the rates applied to petrol and diesel cars. That ongoing advantage means salary sacrifice will remain a worthwhile option for many workers. But the combination of eVED costs feeding into lease rates, and the immovable floor created by minimum wage law, means the scheme will increasingly become the preserve of workers earning comfortably above that floor.

Fleet managers and HR teams will need to build more sophisticated eligibility checks into their processes, and some may decide the compliance overhead is simply not worth it for a small workforce. That would be a significant step backwards for workplace EV adoption.

For now, the message for anyone interested in a salary sacrifice scheme is to go in with clear eyes, ask detailed questions, and not assume that what works for a colleague on a different salary will work for you. The rules are genuinely complex, they are changing, and the consequences of getting them wrong fall on employers and employees alike.

For personalised guidance on how these tax changes affect your specific situation, HMRC's official guidance on salary sacrifice and optional remuneration arrangements is the right starting point. An independent financial adviser with experience in employment benefits can help you model the numbers before you commit.