Here are answers to some of the most frequently asked questions about electric car salary sacrifice schemes:
How long do EV salary sacrifice schemes last?
Most salary sacrifice schemes are for set periods, from two to four years, and allow you to drive the car for both company business and private/personal use.
Which electric cars qualify for the salary sacrifice scheme?
In the case of an electric car salary sacrifice scheme, you will choose a car from a list of vehicles approved by your employer. Most schemes offer an extensive list, enabling you to find a vehicle that suits your needs and budget.
To qualify for the scheme, a car must emit no more than 75g/km of CO2. You might be wondering here, how does a pure electric vehicle generate any emissions? They don’t – but the scheme is also open to some plug-in hybrid cars. However, hybrids have much higher BIK rates than “pure” EVs, so they might not deliver the same savings as a pure electric car.
Can you buy a used electric car on the salary sacrifice scheme?
The short answer is yes and no – or rather, no and yes! You can’t buy a car directly through salary sacrifice. It is initially a lease. Generally, at the end of the lease period, you would return the vehicle and sort any fees for any excess mileage or wear and tear. The leasing company takes the car back and then typically sells the vehicle on the second-hand market.
However, with some electric car salary sacrifice schemes, you can buy the vehicle at the end of the lease. The price will be based on the EV’s market value, which is determined by factors such as age, condition, and mileage. If you hope to buy the car at the end of the lease, ensure this is an option before you sign the paperwork.
Will I pay more tax with the electric car salary sacrifice scheme?
You will not end up paying more tax! The idea at the heart of an electric car salary sacrifice scheme is that employees reduce their taxable income, so they pay less in income tax and National Insurance. By doing this, employees end up saving money. There are three key tax savings, as follows:
1. Income tax:
HMRC calculates the amount of income tax based on how much you earn. There are different tax bands, with lower earners paying a lower percentage of their income in tax.
The way that salary sacrifice schemes work is that you give up a portion of your income in exchange for a benefit. Income tax is generally calculated as a percentage of your gross wage minus certain exemptions. With a salary sacrifice scheme, your car payment comes off your wages before HMRC takes the tax. Therefore you have a lower income and therefore pay less income tax.
2. National Insurance (NI)
NI is a separate tax which is intended to pay for our social safety net – things like the NHS, state pensions, and social care. Like income tax, NI is based on how much you earn. Both employees and employers must make an NI contribution based on their gross income.
Salary sacrifice is great for employers and employees because it reduces taxable income. This means your NI contributions are lower, and your employer has to pay a lower NI contribution for you too. This is a rare case of a win-win!
3. Value-Added Tax (VAT)
VAT is a tax applied to almost all consumer goods and services, currently at a rate of 20%. If you purchase or lease an EV yourself, you would have to pay VAT on the vehicle. However, thanks to electric car salary sacrifice schemes, the employer is responsible for the lease, and so the employer pays the VAT. In most cases, the employer can reclaim VAT back from the Government.
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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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