Did you know you can save money on your electric car with the salary sacrifice scheme? Our simple guide will show you how to get started. Here’s everything you need to know.
What is an electric car salary sacrifice scheme?
Electric car salary sacrifice is an employee benefits scheme in the UK.
The scheme works by taking a portion of your earnings before tax and using this to fund repayments on an electric car. Electric cars purchased through a salary sacrifice scheme work out much cheaper than if you privately leased or rented one yourself.
It works like other salary sacrifice schemes – you may not know it, but you probably already use them! Examples include childcare, professional development, cycle-to-work initiatives, and pension contributions.
At a glance: How does the electric vehicle salary sacrifice scheme work?
A salary sacrifice for electric cars allows you to choose a car from your employer’s approved list of electric vehicles (Or EV for short).
A salary sacrifice electric car scheme gives you access to a company car. Your employer will lease the vehicle from a provider and, in turn, leases it to you under the scheme.
You pay a portion of your salary to cover the monthly lease payments. These set monthly payments are deducted from your gross salary. Your gross salary is your pay before any deductions for tax and national insurance contributions.
Am I eligible for an EV salary sacrifice scheme?
Your company will either have to be already operating an electric vehicle salary sacrifice scheme or agree to set one up. Therefore, you can only use a salary sacrifice scheme if your employer offers one.
In addition, you will need to be over 18 and have a clean driving license. Salary sacrifice electric car schemes come with insurance, and it is easier to get insurance if you have fewer points on your driving license.
On the plus side, no deposits or credit checks are usually required for salary sacrifice.
How does the EV salary sacrifice scheme work for an employee?
Most electric car salary sacrifice schemes work as follows:
1. You choose an EV from a list that your company has approved
2. You sign up to lease the car for a set period, typically two to four years
3. At the end of the contract, you can exchange the electric car for a brand new electric vehicle or one, buy it, or simply hand it back
4. If you hand it back, you might have to pay fees for excess mileage and fair wear and tear charges
Most schemes offer a range of comprehensive benefits, including:
1. Road tax
2. Insurance
3. Tyre and glass repair and replacement
4. Servicing and maintenance
5. Breakdown recovery
6. Accident management
This means that there are only three things you need to pay for:
1. The lease or rental cost of the car, which is deducted from your gross pay before tax and NI contributions
2. Benefit in Kind (BIK) tax – This is just 2% of the vehicle’s value and will be until at least 2025 (See below for more information on BIK)
3. Energy – You are still required to pay for the electricity to run your car, in the same way as you would have to pay for fuel in a diesel or petrol company car
The main benefits of an electric car salary sacrifice for employees are:
1. It costs you up to 60% less to lease an EV this way than if you privately leased one
2. This opens up new possibilities for cars that were out of your budget before
3. You don’t have to worry about insurance, maintenance, or repairs
4. You will make huge savings on “fuel” compared to a diesel or petrol car
How does EV salary sacrifice work for businesses?
At a time when labour shortages are starting to bite, staff recruitment and retention are more important than ever. Offering an electric car salary sacrifice scheme is a great incentive, helping you to attract and retain workers.
Many companies have set clear climate goals to reduce emissions from their operations – and driving down emissions from company vehicles can play a crucial role. An area of increasingly intense focus is the “grey fleet”, which is employees’ use of their cars on the company business. These vehicles are often older, more polluting and not as well maintained as company vehicles, leading to increased road safety risks and higher carbon emissions.
Offering an electric car salary sacrifice scheme to staff can be a crucial plank in your grey fleet management strategy by giving employees access to a new, ultra-low emission, fully insured and maintained car. Your employees will not only be driving new EVs, which are better for the environment, but vehicles you know are fully serviced, maintained, insured, and covered for road tax.
In this way, a salary sacrifice car scheme can be an excellent opportunity for employers to help employees who have never been exposed to company cars.
Choosing a car is a major life decision for any employee. Employers can help by making that choice as clear and straightforward as possible with a well-managed electric car salary sacrifice scheme.
What are the benefits and drawbacks of an electric vehicle salary sacrifice scheme for an employee?
What are the specific benefits of an EV salary sacrifice scheme?
As outlined above, when you exchange part of your salary for a new electric car, you pay lower income tax and also pay less national insurance contributions. The cost of the vehicle is deducted from your gross monthly salary, meaning your income tax and NI contributions are based on your revised salary.
In addition, your employer may also be able to recover the VAT on the rental and maintenance costs and pass those savings on to you. You can’t recover these if you are leasing an EV privately. The UK’s electric car salary sacrifice scheme is one of the most cost-effective ways to access a new EV in this country.
Furthermore, once you get behind the wheel, you can enjoy additional savings compared to driving a petrol or diesel car – particularly far cheaper “fuel” and zero road tax. And, of course, you will also be doing your bit to reduce our nation’s carbon footprint.
Another advantage of electric car salary sacrifice schemes is that they cover almost all the other expenses you usually pay as a motorist. For example, most electric car salary sacrifice schemes include:
- All servicing and maintenance costs.
- Tyre replacement and repair.
- Comprehensive motor insurance.
Some even include full vehicle roadside breakdown cover, recovery and accident management.
On top of all these benefits, you can also get a brand-new car every few years! When the lease ends, you return your electric vehicle and replace it with a new one. Some schemes also enable you to insure your partner or another family member on the car, making it even more attractive.
What are the drawbacks of the salary sacrifice scheme?
With an electric car salary sacrifice scheme in the UK, there are no real drawbacks – you are getting a great EV at a phenomenal saving!
For example, while petrol and diesel cars are cheaper to buy outright than EVs, they have much higher benefits in kind tax (BIK) rates for the salary sacrifice schemes. Add in the “fuel” savings of running an electric car, and you’re quids in!
It is not a drawback as such, but you should always be aware that you don’t own a salary-sacrifice electric car. This isn’t as unusual as you might think – it is precisely the same as with any other company car, privately leased car, or even a car bought on finance. And if you end up falling in love with your new EV, some electric car salary sacrifice schemes give you the option to buy at the end of the lease.
If employers do not already offer a salary sacrifice scheme, then some investment is required to set it up – mainly in identifying the right provider for you. And there is some administration to do – salary sacrifice schemes always involve more paperwork!
Contact Rightcharge, and we can help make your scheme simple and easy to run.
What is Benefit in Kind tax?
The significant saving with an electric car salary sacrifice is that you pay tax on the value of the benefit you receive by getting an EV – this is called Benefit In Kind (BIK tax). If you have ever had a company car, you will already have paid BIK. Don’t worry if you haven’t, as it’s quite simple!
All drivers of company cars, including electric vehicles, must pay BIK. The tax man determines the level of BIK by taking a percentage of the car’s list price. These percentages are based on the vehicle’s carbon dioxide (CO2) emissions. The higher the CO2 emissions, the higher the tax.
Electric vehicles have zero exhaust emission meaning the BIK is naturally very low – and will stay that way over the next few years. Currently, the Government is trying to incentivise the switch to electric vehicles, so BIK is very low on pure electric cars. For the financial year of 2022/23, BIK is just 2% of the car’s actual cost, and it will remain at this level until 2025!
Summary
An electric car salary sacrifice scheme provides a cost-effective way to access an electric vehicle, allowing you to save on your tax and national insurance. Whether you’re an employee looking to save money or an employer aiming to reduce emissions and attract talent, this scheme is a win-win solution.
If you’ve got more questions about electric car salary sacrifices, then get in touch!
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