Electric Vehicle Salary Sacrifice Schemes 2024
March 29, 2024
Electric Vehicle Salary Sacrifice Schemes offer employees the ability to lease electric vehicles while saving 30-60% on costs through pre-tax salary deductions, which include insurance, maintenance, and other expenses, alongside promoting environmental sustainability.
Providers like Corparison, Fleet Alliance, and Octopus Electric Vehicles offer tailored salary sacrifice schemes featuring all-inclusive packages, HR and payroll integration, and comprehensive support, but choosing the right provider requires careful consideration of specific needs and services offered.
Eligibility for EV salary sacrifice schemes generally requires employees to meet criteria such as being over 21 years old and serving a minimum term with their employer, while employers need to establish clear eligibility and manage responsibilities like payroll deductions and providing insurance for the vehicles.
Understanding Electric Vehicle Salary Sacrifice
Electric Vehicle Salary Sacrifice revolutionizes the way employees and employers approach transportation. This strategy enables employees to operate a brand new electric car without shouldering the entire cost. This innovative scheme is all about inclusivity and affordability, making cutting-edge EV models accessible to all. You might wonder about its workings and potential benefits, so let’s explore those aspects now.
Here, companies lease electric vehicles for their employees who agree to sacrifice a portion of their pre-tax salary each month to cover the lease costs. As an alternative to purchasing an electric car in full, this scheme offers advantages to both employees and employers while fulfilling a wider objective.
It promotes the adoption of electric vehicles while offering tax benefits, making it a win-win proposition for all involved.
How It Works
The process of establishing an electric car salary sacrifice scheme is fairly simple. It involves:
Choosing a provider
Creating a scheme plan ready for implementation
The vehicles, lease terms, insurance, and servicing programs are provided by dedicated salary sacrifice companies as part of the setup.
During the participation phase, employees agree to sacrifice a portion of their gross monthly salary in exchange for the benefit of an electric car through company car schemes. Some service providers, such as Love Electric, even offer an exclusive app for employees to choose their car, which is then delivered to their door. The schemes often include:
the car
insurance
road tax
servicing
breakdown cover
potentially even vehicle replacement
This makes the electric car scheme a hassle-free proposition for employees looking to acquire a new electric vehicle.
Benefits for Employees and Employers
Both employees and employers gain from an electric vehicle salary sacrifice scheme. Employees can anticipate the following benefits:
Savings between 30-60% on car costs, thanks to reduced income tax and lower car tax for zero-emission vehicles
Support for environmental sustainability by promoting the use of ultra-low emission vehicles
Reduction of the company’s carbon footprint
Enhancement of the company’s reputation among environmentally conscious stakeholders.
Implementing an electric vehicle salary sacrifice scheme also enhances employee satisfaction and retention, thereby demonstrating employer care.
Top UK Electric Vehicle Salary Sacrifice Providers
In the UK, a handful of providers stand out for their exceptional electric vehicle salary sacrifice schemes. The companies listed are:
Each of them offers unique services in the automotive industry. Each provider presents distinct advantages and features, underlining the importance of selecting one that aligns with your requirements.
Upfront and Ongoing Costs
An electric vehicle salary sacrifice scheme allows employees to obtain new electric cars, including a salary sacrifice car, without bearing any initial cost. These salary sacrifice car schemes often provide an all-inclusive package that can include maintenance and insurance. However, it’s worth noting that employees may incur additional costs for vehicle damage not covered by insurance or if they exceed the agreed mileage limit, leading to excess mileage charges.
Employers, too, must consider potential financial risks such as early termination fees, although some schemes now offer comprehensive risk protection to cover unexpected employee departure events.
Potential Tax Savings
A major benefit of electric vehicle salary sacrifice schemes lies in the potential for considerable tax savings. Employees save on Income Tax and employee National Insurance contributions by paying for EV use via salary sacrifice, significantly reducing the gross monthly lease of the vehicle.
Additionally, the benefits of electric vehicles include:
Significantly lower Benefit-in-Kind (BIK) tax compared to traditional cars
Lower taxable income for employers, resulting in savings on National Insurance Contributions
The ability for VAT registered employers to reclaim 50% of VAT on the car lease
These benefits further enhance the tax advantages for EV drivers and make electric vehicles a more cost-effective option.
Neil from Cardiff Accountants and Wills and probate providers Harries Watkins Jones, says ‘Using the salary sacrifice scheme is becoming more popular with the move to electric cars and a great way to ensure you are tax efficient when moving to EVs. I expect this trend to grow over the next 12-24 months as more companies see the advantages.’
Comparing Costs to Traditional Car Ownership
A comparison of the costs and savings associated with electric vehicle salary sacrifice schemes and traditional car ownership or leasing methods reveals that the former is superior. With an EV salary sacrifice scheme, employees have the potential to save 40-60% on costs compared to leasing an electric car outright. This presents a significant opportunity for reducing expenses and promoting sustainable transportation options. Unlike Personal Contract Hire agreements, which operate like long-term car rentals without an option to buy, salary sacrifice is generally more cost-effective due to tax advantages and inclusive packages.
Eligibility and Restrictions
Despite the allure of electric vehicle salary sacrifice schemes, it’s important to be aware of specific eligibility criteria and restrictions. From age and service length requirements for employees to specific obligations for employers and vehicle qualifications, let’s examine these factors in detail.
Employee Eligibility
To be eligible for an electric vehicle salary sacrifice scheme, employees typically need to be over the age of 21 and have a minimum service length with their employer of 12 months. Additionally, salary sacrifice agreements must be structured so that they do not cause an employee’s salary to fall below the National Minimum Wage after the sacrifice.
It’s also worth noting that employees who are already receiving a company car or a cash allowance as part of their remuneration package are generally not eligible for electric vehicle salary sacrifice schemes.
Employer Requirements
Setting up an electric car salary sacrifice scheme requires employers to assess their company’s specific needs, gauge employee interest, understand budget constraints, and ensure the scheme fits with other employee benefits offered. Employers must also establish clear eligibility criteria for employees to join the electric vehicle salary sacrifice scheme. And while these schemes offer major cost benefits, employers must be aware of financial risks such as early termination fees.
Lastly, employers are tasked with the administrative duty of:
Facilitating payroll deductions
Arranging insurance for the electric vehicles
Agreeing on terms for handling significant life events that might affect scheme participation.
Vehicle Qualifications
When it comes to vehicle qualifications, any electric vehicle is eligible for a salary sacrifice scheme, with available choices determined by the specific employer’s program. Providers offer a vast selection of EVs, including both electric and hybrid cars that meet various employee requirements. Salary sacrifice schemes include luxury electric vehicles such as the Porsche Taycan, indicating that high-end EVs can be selected within these programs.
Family-friendly electric vehicles are also actively included in salary sacrifice schemes, ensuring practicality and the need for passenger capacity are considered in the vehicle selection.
Making the Most of Electric Vehicle Salary Sacrifice
o fully leverage the substantial benefits and savings provided by electric vehicle salary sacrifice schemes, it’s important to understand how to maximize these opportunities. This involves choosing the right scheme, maximizing tax savings, and supporting sustainable mobility.
Choosing the Right Scheme
Selecting the optimal electric vehicle salary sacrifice scheme necessitates a thoughtful evaluation of diverse factors. For employers, these include employee budgets, scheme management, employer’s responsibilities, and the support level from providers. When selecting a scheme, employees should consider the variety of vehicles, monthly costs, and contract flexibility to match their preferences and financial situation.
Evaluating how salary sacrifice schemes work requires attention to additional benefits like insurance, maintenance, and breakdown cover, ensuring participants have comprehensive support in managing their gross salary.
Maximising Tax Savings
Optimising tax savings plays a key role in fully utilising electric vehicle salary sacrifice schemes. As discussed earlier, employees save on Income Tax and National Insurance by paying for EV use via salary sacrifice, significantly reducing the gross monthly lease of the vehicle. The tax benefits for EV drivers include:
Lower Benefit-in-Kind (BIK) tax for electric vehicles compared to traditional cars
Potential exemption from congestion charges and low emission zone fees
Access to government grants and incentives for purchasing and charging electric vehicles
These tax benefits make electric vehicles an attractive option for both employees and employers.
For businesses, the First Year Allowance offers the opportunity to offset 100% of the cost of new zero-emission electric vehicles against their yearly taxable profits, providing substantial tax relief.
Supporting Sustainable Mobility
Beyond financial advantages, electric vehicle salary sacrifice schemes also foster sustainable mobility. By providing only battery electric vehicles (BEVs) through the salary sacrifice scheme, these initiatives reinforce efforts to achieve net-zero emissions. Local authorities are supported by the Local Electric Vehicle Infrastructure (LEVI) fund to enhance EV charging infrastructure, combined with workplace charging solutions like supplying a 22kW charger to a factory or office.
Implementing an EV salary sacrifice scheme aligns with corporate social responsibility (CSR) and environmental, social, and governance (ESG) objectives by contributing to the significant reduction of carbon emissions.
Frequently Asked Questions
Is EV salary sacrifice worth it?
Yes, an EV salary sacrifice scheme is worth it as it can save employees 40-60% on costs compared to leasing an electric car outright.
How much can I save with EV salary sacrifice?
You can save anywhere between 30-60% on the cost of the non-cash benefit through EV salary sacrifice, depending on your tax bracket and salary. Use a calculator to work out your potential savings on an electric car subscription.
What is the downside to salary sacrifice a car?
The downside to salary sacrificing a car is that it results in a reduced gross salary, leading to lower take-home pay. This can impact your overall financial situation negatively.
What is the HMRC salary sacrifice scheme for electric cars?
The HMRC salary sacrifice scheme for electric cars allows employees to obtain a new electric car with corporate discounts and a fixed monthly price covering tax, insurance, and maintenance. This can be a valuable benefit for employees looking to go green and save on motoring costs.
Who is eligible for electric vehicle salary sacrifice schemes?
Employees over the age of 21, employed for at least 12 months, and holding a full driving license for more than six months with no more than six current endorsement points are eligible for electric vehicle salary sacrifice schemes. However, their net salary cannot be reduced below the National Minimum Living Wage rate due to the salary sacrifice agreement.
