The Ultimate Guide to EV Salary Sacrifice Car Schemes
Are you ready to go electric?
Want to know if an electric car is the right choice for you?
Join in with our simple online quiz to find out more.
How does car salary sacrifice work for electric vehicles?
Leasing an electric car through salary sacrifice is an employee benefit that enables workers to lease a vehicle using their pre-taxed income. This can save them up to 40% on the cost of leasing a brand-new electric car. Along with being a very tax-efficient way to drive a great electric company car for the employee, an electric car salary sacrifice scheme also has several benefits for the employer too.
In this guide, we look at the easy process of setting up an electric car lease salary sacrifice scheme for a business, outlining the benefits for both employers and their employees.
The benefits of an electric car lease salary sacrifice scheme
There are several benefits of electric car leasing through a salary sacrifice scheme. We have split them into benefits for employees and for employers.
Employee benefits of leasing an electric car through salary sacrifice
- Leasing an electric car through a salary sacrifice scheme is the most tax-efficient way of driving an electric car, which can save the employee up to 40% on the lease cost when compared to a standard lease.
- Employees leasing an electric car through salary sacrifice are able to drive a brand-new electric car for work and personal use at a heavily discounted cost, thanks to tax and National Insurance Contributions (NICs) efficiencies.
- There are no up-front payments or credit checks needed, as there would be with a personal lease or other kinds of car finance.
- If the company chooses the relevant option, the monthly payment can also include electric car insurance and maintenance, making it a hassle free way to lease a car.
- Company car drivers must pay Benefit in Kind (BiK) tax, but with electric cars benefitting from BiK rates set at just 2% compared to up to 37% on petrol or diesel equivalents, the savings are even higher.
- Employees who want to switch to an electric car for environmental reasons can feel great knowing their commute to work and play is helping improve air quality in their communities.
The benefits of an electric car lease salary sacrifice scheme for employers
- Offering a salary sacrifice scheme can be seen as a major benefit to an employee, helping to attract and retain the best talent in the workforce.
- Offering salary sacrifice means that employers pay less National Insurance Contributions (NICs) for all those employees who join the scheme.
- There are often no set-up fees or running costs for employers offering an EV salary sacrifice scheme, with the leasing partner managing the processes and most of the admin (check with suppliers as offers may vary).
- By leasing electric company cars, your business can contribute significantly towards your wider sustainability and net-zero goals.
What are the electric car tax benefits for those who offer or join a salary sacrifice scheme?
We’ve already mentioned that leasing electric company cars through a salary sacrifice scheme is tax-efficient, but here’s why:
- With salary sacrifice schemes, the monthly payment for the electric car lease is taken from the employee gross pay before they are taxed, or other deductions are made from their salary. This means they don’t pay as much tax and have lower NICs.
- A salary sacrifice scheme can help cut employer’s National Insurance Contributions (NICs) by around 13.8% and allow employers to claim capital allowances that reduce taxable profits.
- As employees leasing electric company cars must pay tax, known as BiK, the great news is that BiK rates on electric vehicles are significantly lower than on petrol or diesel cars.
You can find more about the benefits of Salary Sacrifice here.
How does car salary sacrifice work for employers?
The process of setting up a salary sacrifice scheme for employers is very straightforward. With ElectriX as your partner, you can experience:
- No fees or admin charges and no up-front costs for you or your employees.
- Minimal admin requirements for your business.
- Free surveys to assess the appetite for a salary sacrifice electric car lease scheme in your business, and help communicating the benefits to interested employees.
- Many cars delivered in as little as 30 days.
- Protect your organisation from liability if employees leave
ElectriX offer Early Termination Protection to cover you should an employee leave during the duration of their leasing agreement.
There are three simple steps to take before you can start providing a highly flexible electric car lease salary sacrifice scheme to your employees.
You can find out more with our guide, Electric car salary sacrifice scheme explained for employers.
Other considerations when leasing electric company cars through salary sacrifice schemes
It’s always worth noting that leasing electric company cars through a salary sacrifice scheme will mean that employees receive less in their pay packet every month as a portion of their salary is taken away before other deductions are made. However, this is usually significantly outweighed by the tax benefits and other associated savings when compared with having separate bills for things such as:
● Monthly payments for a personal car lease or another kind of car finance repayments
● Electric car maintenance costs, such as servicing
● Electric car insurance
● Independent Home charger installation costs
It is also important to highlight that there are minimum wage thresholds for employees wishing to take part in a salary sacrifice scheme.
Some people worry that using an electric car lease salary sacrifice scheme could impact their affordability for financial products such as a mortgage application. The truth is that as long as the lender is made aware that the applicant is participating in the scheme, it should not impact a mortgage application.
Frequently asked questions on salary sacrifice schemes for electric cars
How much will salary sacrifice save me?
The amount employees can save when leasing an electric car through a salary sacrifice scheme will vary, depending on their income tax bracket, the specific electric car chosen to lease and what it is compared to.
It’s worth noting that it’s usual for employees to save up to 40% with their brand-new electric car lease through salary sacrifice.
For employers, the savings they make are through paying less in National Insurance contributions (NICs) for the employee with the lease agreement, as the portion they pay for the car from their monthly salary is calculated before NICs deductions are taken.
Is salary sacrifice worth it for an electric car?
For employees wanting to lease a company car, using an EV salary sacrifice car scheme through their employer will be by far the most tax efficient way to do so, while BiK rates for electric cars are so low in comparison to petrol or diesel vehicles.
For many employees, for the same car lease budget, the savings when leasing an electric car means they are able to lease a more premium vehicle than they might otherwise do.
Will I need to pay a deposit for my salary sacrifice EV?
A major benefit for some drivers is that leasing an electric car through a salary sacrifice scheme means that there is no up-front deposit needed, as there can be with a personal EV lease.
There may be a fee involved which is due when the vehicle is delivered, but salary sacrifice lease payments will only start once the employee has received the electric car.
Are payments the same every month for an EV on salary sacrifice?
It’s possible that there may be some tax changes during your salary sacrifice EV lease agreement that could have an impact on how much you pay for your car. For example, if you change tax brackets due to a pay increase, or if the government changes BiK rates, you may need to pay a different amount of tax. However, the lease agreement amount itself won’t change from what is detailed in the contract.
How long does an electric car salary sacrifice lease last?
There is lots of flexibility in terms of how long the lease agreement lasts for your salary sacrifice EV. The shortest possible lease agreement will be two years, and the maximum lease duration will be five years. This way, employees can pick the lease term that works best for their specific circumstances.
What happens to the electric car if I leave the business during the lease term?
If you leave your employment before the end of the salary sacrifice agreement term, the car will need to be returned and the payments will stop. There may be an early termination fee due, depending on the agreement terms. With an ElectriX salary sacrifice scheme, employers can choose to reallocate the vehicle to another employee if the original driver leaves the business, who will then take on the remainder of the agreement. Alternatively, cover is available for early termination so that the employer doesn’t need to take on the full responsibility for the electric vehicle until the end of the term.
What happens at the end of the salary sacrifice agreement?
At the end of the salary sacrifice agreement, the electric car is returned as per the terms, no more payments are due and the employee is then able to start a new salary sacrifice EV lease, with a brand-new vehicle, if they choose to do so.
Do ElectriX offer support to employers running an electric car salary sacrifice scheme?
ElectriX offer all of the support needed for employers to run their electric car salary sacrifice scheme, including help for enrolled employees and the ability to tailor your scheme to your specific needs and appetite to risk. Find out more about salary sacrifice for employers.
Which employees are eligible for EV salary sacrifice car schemes?
If the employer wishes to open the salary sacrifice car scheme they run for all employees, there are some general eligibility criteria that must be met:
- The employee must be at least 18 years of age and hold a full driving licence
- The employee must be able to afford the amount of salary to be sacrificed, for the duration of the agreement
- The amount sacrificed from their salary must not take their gross pay under the National Living Wage
- There may be other eligibility criteria for any specific salary sacrifice car scheme required by the employer, as schemes can vary between different employers.
If you want to find out more about offering salary sacrifice electric car leasing to employees of your business, get in touch.
Is an electric car
right for me?
Discover electric cars that are available through our partner CBVC today.
Discover cars available