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Electric Car Salary Sacrifice Schemes Explained

February 27, 2024

The upfront cost of purchasing an electric car can be prohibitively expensive for many.

This is where electric car salary sacrifice schemes come in.

What are Electric Car Salary Sacrifice Schemes?

Electric car salary sacrifice schemes allow employees to lease an electric car through their employer and pay for it via deductions from their pre-tax salary.

Here’s how it works:

  • The employer sets up a scheme with a leasing company to offer electric cars to employees. The available cars and lease terms will be pre-arranged.
  • Interested employees can choose one of the available electric cars and agree to a lease term, usually 2-4 years.
  • Each month, the agreed lease payment will be deducted from the employee’s salary before income tax and National Insurance Contributions (NICs) are deducted.
  • The employee gets to drive the electric car for personal and business use. Insurance, servicing, and maintenance are usually included in the monthly payment.
  • At the end of the lease term, the employee returns the car. They can then lease another electric car if they wish.

By sacrificing a portion of salary before tax, the employee saves on income tax and NICs. This makes leasing the car more affordable.

The employer handles the lease with the provider, so the employee has no credit check or concerns about ownership. For the employer, salary sacrifice schemes can attract talent and reduce NICs liability.

Benefits of Connected Home EV Chargers

The Benefits for Employees

Electric car salary sacrifice schemes offer several benefits for employees:

Significant Cost Savings

By leasing through salary sacrifice, employees could save around 30-40% compared to leasing privately. Those paying 40% income tax could save over £200 per month on a £500 monthly lease.

Fixed, All-Inclusive Payments

Road tax, insurance, maintenance, and breakdown cover are usually bundled into the monthly cost. There are no unexpected bills.

No Upfront Payment

Unlike buying a car outright or leasing privately, there is no large upfront deposit required. Employees can start driving straight away.

Hassle-Free Experience

All the lease paperwork and arrangements are handled by the employer and leasing firm. There’s no need to worry about reselling the car later on.

Access to EVs

For many, salary sacrifice is the most affordable way to switch to an EV. Employees can enjoy the savings, performance and environmental benefits.

Attractive Company Benefits

Having an electric car salary sacrifice scheme can make a company more attractive to potential employees. It also helps retain talent.

What’s Included in the Scheme?

Electric car salary sacrifice scheme packages typically include:

  • The electric car itself
  • Vehicle tax and registration
  • Insurance (comprehensive or third party)
  • Routine servicing and maintenance
  • Breakdown assistance
  • Replacement tires if needed
  • Home charging equipment and installation

Electricity costs will need to be covered by the employee. A small amount of Benefit-in-Kind (BiK) tax is also payable, but very low for EVs.

How Do Employees Pay?

Each month, the agreed lease payment is deducted from the employee’s salary before tax and NICs.

For example, if the lease payment is £500 per month:

  • A basic rate (20%) taxpayer would save £100 in income tax and £62 in NICs. Their take home pay is reduced by £338.
  • A higher rate (40%) taxpayer would save £200 in income tax and £103 in NICs. Their take home pay is reduced by £197.

The savings compared to leasing privately or purchasing outright are clear, especially for higher rate taxpayers.

What Vehicles are Available?

Employers will choose a leasing provider that offers a range of electric cars to suit different budgets and needs. Typical options include:

  • Smaller hatchbacks – Renault Zoe, Vauxhall Corsa-e, Nissan Leaf
  • SUVs/crossovers – Kia e-Niro, Hyundai Kona Electric, MG ZS EV
  • Luxury sedans – Tesla Model 3, BMW i4, Polestar 2
  • Premium SUVs – Audi e-tron, Mercedes EQC, Jaguar I-Pace

The choice available will ultimately depend on the provider selected by the employer. Employees should check what cars they can choose from.

Who Can Get an Electric Car Salary Sacrifice?

Electric car salary sacrifice is only available if your employer has a scheme in place. They are under no legal obligation to offer it. Having an EV scheme can help attract talent and support environmental goals.

Assuming a scheme exists, the employee will need to meet some basic criteria:

  • Be a full-time permanent employee
  • Hold a valid driving licence with minimal penalty points
  • Have a clean credit history
  • Earn above the National Minimum Wage

Scheme rules vary so check with your HR department. Self-employed contractors won’t qualify for a salary sacrifice scheme.

FAQs About Electric Car Salary Sacrifice

Can I get any electric car I want?

No, you can only choose from the range pre-approved by your employer’s chosen salary sacrifice provider.

What if I leave my job during the lease?

You’ll likely need to return the car and pay an early termination fee. Check specifics with your employer.

What if I go on maternity leave?

Your employer may cover costs initially. But you’ll likely repay some when back at work. Check policy.

Can I buy the car outright after the lease?

You may have the option to purchase the car based on an agreed residual value. This should be checked at the outset.

Do I need a home charger?

Most schemes will include installation of a home charger. It’s important for easily recharging your EV.

Are Electric Car Salary Sacrifices Worth it?

For most employees, electric car salary sacrifice schemes represent an excellent value proposition. The tax savings compared to private leasing or buying can be substantial, often 30-40%.

The convenience of having a brand new EV with all running costs covered, without the hassle of ownership, is a major plus. While helping the environment is an added bonus.

Clearly, having an employer that offers such a scheme is a big advantage. For employers too, there are plenty of benefits around attracting talent, reducing tax liabilities and supporting green initiatives.

Overall, when available, electric car salary sacrifice schemes make acquiring an EV exceptionally affordable. The savings over other options are significant. For anyone considering an electric car, it’s certainly worth exploring whether such a scheme could make it a reality.

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