Salary Sacrifice for Electric Cars

14 Posted: 14th Nov 2022
Salary Sacrifice for Electric Cars
  • Thinking about making the switch to electric motoring?

    Salary sacrifice schemes offer an affordable and often tax-efficient way to drive an electric vehicle. You may have already come across salary sacrifice schemes in the workplace. For example, childcare vouchers, cycle-to-work schemes and professional training all work in the same way. Instalments are made regularly and taken from your gross salary, meaning you don’t pay tax on this part of your monthly wage. 

    It sounds complicated but using a salary sacrifice scheme for electric cars is a simple process. There are several benefits including no deposit to pay or credit checks. Plus, you get insurance and servicing included. While you pay less tax on your salary, Benefit in Kind (BiK) does apply to company cars.

    But, BiK rates are low and are capped at 2% until 2025. So if you’re interested in driving an electric car on a salary sacrifice scheme, you could make some great savings. Keep reading below to learn more about salary sacrifice for electric cars.

     


  • How does electric car salary sacrifice work?

    If your employer offers an electric car salary sacrifice scheme, you agree to pay a proportion of your pre-tax salary for the car.

    Your employer offers you the option of various electric cars available on the scheme. They handle the leasing side of things, and you get insurance and servicing included with your EV. Most lease terms are between two and four years, and you can use the car for private or business use.

     


  • Rules and regulations that affect electric car salary sacrifice

    When an employee sacrifices their salary, there are numerous rules regarding tax to consider. In April 2017, Optional Remuneration Arrangements (OpRA) changed and largely withdrew the real tax benefits of salary sacrifice schemes.

    However, the changes did not apply to ultra-low emissions vehicles (below 75g/km). So, choosing an EV on a salary sacrifice scheme still benefits most employees.

     


  • What do you get with salary sacrifice for electric cars?

    Salary Sacrifice Electric Cars

    As well as a lease on a new vehicle, salary sacrifice also offers:

    • Servicing and maintenance
    • Insurance
    • Road tax
    • Accident management
    • Breakdown cover

    There’s also no deposit to pay and no credit check when applying.

     


  • What do you have to pay for?

    Electric car salary sacrifice schemes can be an affordable way to move into green motoring. There are only three things you need to pay for:

  • Rental costs

    The monthly cost of leasing your new electric car is deducted from your gross salary. So, you pay fixed, affordable instalments. Plus, your employer can’t charge you more than what they’re leasing the car for.

  • Power costs

    While you have to pay to charge your vehicle, the great thing about electric cars is they’re affordable to top up. So compared to filling up at the pumps, you’ll typically pay less for electricity between recharges.

  • Benefit in Kind tax (BiK)

    Benefit in Kind tax rates are low for electric cars at just 2% for 2022/23 until 2025. In addition, recent announcements in the budget also state that rates will rise by a maximum of 1% per year until 2028.

     


  • Employee benefits of electric car salary sacrifice

    Electric Cars Salary Sacrifice

    There are plenty of employee benefits, making it a great choice if you need a car and are after an EV.

  • An affordable way to drive an EV

    Leasing an electric car via a salary sacrifice scheme is a great way to transition to green motoring. There’s less tax to pay on your gross salary, and Benefit in Kind rates are low, making driving an EV more affordable.

  • No emissions

    Electric cars don’t produce any exhaust emissions, which helps lower your carbon footprint and improve air quality.

  • Servicing, insurance & tax included

    EV salary sacrifice schemes include servicing, insurance and road tax. So you don’t have to worry about additional costs during the lease term.

  • Regularly upgrade cars

    With electric vehicle salary sacrifice schemes typically running between two and four years, you can upgrade your car more quickly and drive the latest models without a long wait.

  • Use gross salary, not taxed pay

    As your monthly instalments are taken from your gross salary, there’s a small saving on tax in your take-home pay. 

  • Insure a family member

    Unlike a traditional company car, you can insure a family member on your salary sacrifice electric car. So, they can benefit from green motoring too. 

  • Drive for personal and business use

    There are no restrictions on what you drive your vehicle for. Both private and business use is allowed throughout the leasing term.

     


     

  • Employer benefits of electric car salary sacrifice

    Salary sacrifice electric cars

    There are often numerous risks when employees use their vehicles for business purposes. So, providing a salary sacrifice scheme in the workplace offers more protection for organisations.

  • Lower mileage expenses claims

    Employees charge up and pay for electricity themselves in a salary sacrifice scheme. This reduces mileage claims from people using their vehicles for business use.

  • Great company perk

    Many individuals can save money by driving an electric car. So, providing an EV salary sacrifice scheme to employees is a well-received benefit, which in turn boosts morale.

  • Reduces the company’s carbon footprint

    Transitioning to greener practices is important for all businesses. Encouraging employees to take eco-conscious steps also improves an organisation’s carbon footprint. By offering an EV salary sacrifice scheme, employers promote greener commutes and business travel.

     


  • Open to all employees

    Salary sacrifice schemes provide a chance for all employees to make the switch to electric. However, lease payments must not take employees below the minimum wage.

     


  • Other considerations for electric car salary sacrifice

    Salary Sacrifice for Electric Cars

    If you’re interested in choosing an EV via a salary sacrifice scheme, there are a few other factors that could prove beneficial, such as:

  • Enough range for daily commutes

    Research suggests that the average commute is less than 30 miles a day, and since the pandemic started, commute times have dropped dramatically, with more people working hybrid patterns.

    With shorter commutes, EV drivers get more journeys for their money. For example, a car with a 200-mile range travelling 30 miles a day will get just over 6.5 trips to work and back before the next recharge. 

  • Cheaper to run

    While electric vehicles have a higher list price than conventional cars, everyday cost savings often outweigh the difference. For example, charging an electric vehicle is cheaper than filling it up at the pump.

    Even with BiK tax to pay, it still proves cost-effective due to insurance, servicing and maintenance charges being covered in the lease agreement.

  • EV leasing

    EV salary sacrifice schemes offer employees the chance to lease an electric car from their employer. The employer leases the car via a third party and covers the paperwork. There are several benefits to leasing a car over buying outright, such as:

    • Fixed, affordable monthly payments
    • Terms usually between two & four years
    • Option to upgrade frequently
    • Servicing, maintenance, road tax & insurance included 
  • Minimum wage

    Salary sacrifice schemes are available to all employees. However, employees cannot join a scheme if car payments take them below the minimum wage.

    E.g. if you sacrifice £250 a month for your lease payments, and this takes your pre-tax salary to below minimum wage, you’re then unable to use salary sacrifice for your chosen car.

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