How will National Insurance changes affect salary sacrifice?

5 min to readLeasing
National Insurance contributions will increase from April 2022 - and the side effect is an even stronger incentive for electric vehicle salary sacrifice. Here's why.
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As life begins to get back to normal after the worst of the Covid-19 pandemic, the UK government is investing heavily in healthcare, aimed at improving services and bringing waiting lists back under control.

The Health and Social Care Levy will raise an additional £11.4bn in revenue - ringfenced for the NHS and social care - by introducing a 1.25%-point rise in National Insurance contributions for April 2022/23 tax year [1]. This amounts to a small rise in payments for both businesses and their employees and affects company car schemes, including salary sacrifice. However, the effects for low-CO2 vehicles are minimal.

How does salary sacrifice work?

Salary sacrifice schemes allow employees to exchange some of their gross salary for a range of attractive benefits - such as childcare, pensions and health insurance - at discounted rates that wouldn't be available to them as individuals. They're an effective way to recruit, motivate and retain staff, and can extend some of the perks of company car schemes to other employees.

The process is simple:

This has made salary sacrifice a very affordable way to drive an electric or plug-in hybrid car. Benefit-in-Kind payments and NICs are based on what’s called a ‘taxable value’ – a percentage of the list price, which increases for vehicles with higher CO2 emissions (or shorter electric range for plug-in hybrids under 50g/km). New ultra-low tax bands introduced last year [3] mean the taxable value for vehicles under 50g/km is usually much lower than the salary given up – an added incentive for drivers to choose a plug-in.

What’s changing next year?

From April 2022, HMRC will apply a 1.25%-point levy on National Insurance contributions, which impacts how income and company car schemes are taxed [4]. This will continue to be collected the same way even after it becomes a tax in its own right 12 months later, and amounts to a permanent increase in NICs for employers and employee.

Those changes mean:

The levy will result in higher contributions for all employees and employers (excluding those earning less than the minimum income threshold). However, in monetary terms, the bulk of that increase comes from NICs on the salary itself. Drivers do not pay NICs on a company car, and the small taxable value of sub-50g/km vehicles means employers’ contributions will only go up by a small amount. Especially for battery-electric vehicles.

Some examples are shown below:

Screenshot 20220819 at 163538

Worked examples:

Driver A earns £30,000 (gross) per year and is considering an electric vehicle with a £30,000 list price and lease rates of £250 per month on a salary sacrifice scheme.

Driver B earns £60,000 (gross) per year and is considering a plug-in hybrid with a £50,000 list price, an electric range of 45 miles and CO2 emissions under 50g/km. Monthly lease rates are £400 per month on a salary sacrifice scheme.

Announced during the March 2021 Budget, income thresholds for tax and NIC have been frozen at 2021/22 levels until the 2025/26 financial year [7].

What’s Next?

We’re here to help. Since 2010, LeasePlan UK has set up dozens of salary sacrifice schemes covering more than 90,000 employees. Our expert consultancy team can talk you through the process, help you to meet your own goals and explain the benefits to your employees. We can also put you in touch with our existing customers, to find out first hand how other organisations have benefitted.


[1] HM Revenue and Customs. (2021). Health and Social Care Levy. [online] Available at: [Accessed 30 Sep. 2021].

[2] HM Revenue and Customs. (n.d.). Salary sacrifice for employers. [online] Available at: [Accessed 30 Sep. 2021].

[3] GOV.UK. (n.d.). Company car benefit ? the appropriate percentage (480: Appendix 2). [online] Available at: [Accessed 30 Sep. 2021].

[4] Department of Health and Social Care. (2021). Build Back Better: Our Plan for Health and Social Care. [online] Available at: [Accessed 30 Sep. 2021].

[5] Government Digital Service (2021). National Insurance rates and categories. [online] GOV.UK. Available at: [Accessed 30 Sep. 2021].

[6] HM Revenue and Customs. (2021). Rates and thresholds for employers 2021 to 2022. [online] Available at: [Accessed 30 Sep. 2021].

[7] HM Revenue and Customs. (2021). Income Tax Personal Allowance and the basic rate limit from 6 April 2022 to 5 April 2026. [online] Available at: [Accessed 30 Sep. 2021].

Published at 20 October 2021
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20 October 2021
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