Are salary sacrifice schemes a good idea?
Offering salary sacrifice schemes have been increasingly popular in the last couple of years - in 2017, Fleet News published an article which stated, “salary sacrifice schemes remain one of the most popular employee benefits in the UK.” Salary sacrifice is so popular because employees can save by paying for things directly from their salary, before tax.
This graph shows how often the term “salary sacrifice” was searched for between 2019 and 2023. You can see there has been a very steady incline over this time, with some natural peaks and troughs. This shows that interest continues to grow, year-on-year.
New research conducted at The Electric Car Scheme reveals that 83% of companies plan to offer an electric car salary sacrifice scheme in 2024. However, concerns remain about the cost and risk to businesses who are implementing the scheme and there are lots of misconceptions.
At The Electric Car Scheme, we understand salary sacrifice can be a confusing subject to understand because of the intricacies of setting up the schemes and ensuring they run smoothly. This is your comprehensive guide to all things salary sacrifice. We will explain how they work and what you can salary sacrifice before looking more specifically at electric car salary sacrifice. We will cover the pros and cons for both employees and employers, how to set up a scheme and show you some of the cars available to salary sacrifice!
What is salary sacrifice?
Salary sacrifice is an agreement between employer and employee for the employee to give some of their salary towards a benefit. Salary sacrifice is non-taxable, lowering your income tax and national insurance contributions. It is a popular way to save for retirement, support childcare costs, buy a bike or lease a car. Employers will set up a salary sacrifice arrangement by changing the terms of the employee’s employment contract. It is important to note that a salary sacrifice arrangement cannot reduce an employee’s cash earnings below the national minimum wage.
Do I pay less tax with salary sacrifice?
In short, yes. Because you give up a portion of your salary, the amount you get paid is reduced which then reduces the amount of income tax and national insurance you pay. This means more money gets spent on things that benefit you - like your pension or driving an EV.
What can I salary sacrifice?
There are several things you can salary sacrifice, such as;
Childcare vouchers - this scheme closed to new applicants in October 2018, but people who were already salary sacrificing these can still do so. This ultimately helped parents save on childcare or nursery.
Bikes - Many employers allow their employees to use Cycle To Work schemes to save money when buying a bike. You choose the bike you want, and your employer then buys it and leases it to you. Your salary will be reduced by the net cost of the bike for the hire period. Once the hire period is over, your employer can then sell it to you at a fair market value set by HMRC.
Increase your pension - You can reduce your national insurance contributions and income tax by giving up part of your salary and directing it to your pension instead. This could make a big difference to your pension pot when you come to retire!
Electric cars - You can reduce your tax contributions and sacrifice some of your salary to a brand-new electric car instead. This is what we do at The Electric Car Scheme, so stay tuned to find out more about this!
How does salary sacrifice work for electric cars?
Instead of leasing an electric car the normal way, salary sacrifice allows employees to lease electric cars via their employers. Government tax incentives promote sustainable choices, but they can be complex and difficult to access. The Electric Car Scheme makes it simple to access these incentives to transition to Net Zero.
Employees can access an electric car by sacrificing a portion of their pre-tax salary. Usually, when leasing cars, the employee would pay with their net salary (after tax). With salary sacrifice, the employee deduces this from their gross salary (before tax), meaning this comes from income tax and national insurance.
Employers can attract and retain top talent, improve their ESG goals and save money in the long term by providing this as an employee benefit.
As an employer, you can give employees access to a huge range of electric cars. But that’s not all, there are plenty more benefits to setting the scheme live…
How electric car salary sacrifice works for employers
Employees at the majority of businesses in the UK should be able to access a salary-sacrifice electric car from next year, new research has revealed. We, at The Electric Car Scheme, recently released a survey of 250 managing directors, finance directors, and HR directors.
It revealed that:
83% of respondents plan to offer an electric car salary sacrifice scheme in 2024
47% plan to implement one in the first half of 2024
16% already have one in place at their business.
However, many of those surveyed also believed that it would:
Cost to set up and run the scheme
Is a risk to the business to run the scheme
There is a large amount of work needed to set up and run the scheme.
“There is tremendous demand for electric cars through salary sacrifice, which is rising all the time. It is not surprise to see that 2024 is set to be a landmark year for the scheme”
Hopefully, the following benefits will prove this isn’t the case at The Electric Car Scheme.
Tax savings whilst offering a cost-neutral benefit
Like employees, employers also save money through the scheme. Employer savings are through paying lower corporation tax and national insurance contributions on the reduced employee wages.
At The Electric Car Scheme, one big benefit for employers is that there is no net cost to your business to run the scheme. Net zero choices should be affordable for all. With no set-up or running costs, our fee is equivalent to your employers’ tax savings, so you can roll out the scheme at no cost to your business.
Contribute to your ESG goals
ESG stands for Environmental, Social and Governance and are the three pillars of company reporting obligations. The environmental aspect focuses on climate change, waste and pollution as well as how companies manage their environmental impact on the planet. The social pillar refers to issues within the company, like employment equality and privacy issues. Finally, governance refers to fraud, accounting standards, transparency, ethics and anti-corruption.
The Electric Car Scheme is a great example of green employee benefits that also benefit the planet, which is attractive for the environmental part of this. By adding this benefit, you would be significantly reducing the amount of CO2 your company produces daily, saving tonnes.
Boost employee retention and attract talent
Show your team you care and can make them feel rewarded. By offering electric car salary sacrifice as a benefit, you can support their journey to Net Zero and directly reduce your company’s carbon emissions. You could be saving your team between £5,000 and £15,000 on the cost of their car through salary sacrifice - this is a company benefit they will want to use.
Having a good employee benefits package can also cause some candidates to choose your company over somewhere different. In today’s competitive job market, candidates are seeking holistic employment packages that align with their values and long-term goals.
Sustainable benefits have become a crucial factor when attracting top talent. Salary sacrifice schemes are guaranteed to give your company a competitive edge.
Complete Risk Protection
We launched Complete Risk Protection last year to protect employees from facing major financial risks if employees decide to leave while they’re still leasing the vehicle. It differs from other market offerings, which often feature complex terms & conditions, exclusion periods and return limits. Ultimately, reassuring employers that the employer is protected from day one - so if you need to make redundancies or dismiss an employee, they can do so at any time without facing a fee.
The Electric Car Scheme’s Complete Risk Protection package also protects the employer from any shortfall due to employee resignation, long-term sickness, or family-friendly leave. A new and unique feature even protects employers if the employee doesn’t repay the company for damage to their car.
You can read more about our Complete Risk Protection offering here.
How does electric car salary sacrifice work for employees?
We know salary sacrifice can sometimes be confusing, but at The Electric Car Scheme, we try to make the process as simple as possible. See the three simple steps it takes to get the EV of your dreams.
What are the benefits of salary sacrifice for employees?
The main benefit of electric car salary sacrifice for employees is the reduced price of a brand-new EV. However, there are some more benefits to choosing The Electric Car Scheme specifically.
Save 30-60% on any electric car
Salary sacrifice allows you to save between 30-60% on any electric car of your choice. You simply agree to have a portion of your pre-tax salary deducted each month to cover the car cost. This is possible because you reduce the amount of national insurance and income tax you pay. This means you can lease an electric car that may have been out of your usual price range!
Here are some cars picked at random to show you how the monthly breakdown works.
You can salary sacrifice the Nissan Leaf for as little at £212 per month. As you can see, income tax and national insurance savings amount to £133 every month.
Or if an Audi e-tron is more your style, pay £898 towards this each month. By salary sacrificing this car, you can save up to £18,242 over three years compared to the standard lease cost.
The final car we have chosen to include is the Genesis GV60. The income tax and national insurance savings amount to £353 per month but you do have to pay a small amount in benefit in-kind tax (£52). Benefit in Kind or BIK tax is a tax levied on the company benefits given to an employee, over and above their salary. You can learn more about it here.
Best prices on the market
At The Electric Car Scheme, we search across the EV market to find the best prices. Our access to the top leasing companies means you can access the best prices available. You can be confident you achieve the best price available in addition to the full 30-60% tax savings on the cost of the car through salary sacrifice.
Complete Risk Protection for employees
Life can be unpredictable, which is why at The Electric Car Scheme we aim to protect employees from costly exit fees. Whether it’s due to resignation, redundancy, parental leave, sickness, or worse, you have protection should the unexpected happen.
Electric car salary sacrifice is a win-win for employees and employers
So, are salary sacrifice schemes a good idea? Having a well-structured EV salary sacrifice scheme in place can create a win-win scenario for both employees and employers. From making employees feel more valued or promoting sustainability as a company, salary sacrifice creates opportunities for both parties with no out-of-pocket cost to the employer.
The Electric Car Scheme enables employers and employees to launch with confidence knowing you’re getting the best prices, first-rate protection, and a trusted 5* service. You will receive the best prices on electric cars available in the market, unrivalled protection against unexpected costs, and a trusted 5* service that goes above and beyond your expectations.
You can learn more about The Electric Car Scheme by visiting the rest of our website.
Our pricing is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, and are inclusive of Maintenance and Breakdown Cover. The Electric Car Scheme’s terms and conditions apply. All deals are subject to credit approval and availability. All deals are subject to excess mileage and damage charges. Prices are calculated based on the following tax saving assumptions; England & Wales, 40% tax rate. The above prices were calculated using a flat payment profile. The Electric Car Scheme Limited provides services for the administration of your salary sacrifice employee benefits. The Electric Car Scheme Holdings Limited is a member of the BVRLA (10608), is authorised and regulated by the FCA under FRN 968270, is an Appointed Representative of Marshall Management Services Ltd under FRN 667174, and is a credit broker and not a lender or insurance provider.
