What credit checks are required for EV salary sacrifice?
Salary sacrifice schemes are a good way for companies to provide their employees benefits without taking on the cost. In the case of electric car salary sacrifice, the business provides the car for the employee who sacrifices part of their salary to cover the cost of the car.
Unlike traditional car leases, where payments come from net pay (post-tax income), salary sacrifice deducts expenses from the gross salary (pre-tax income). This tax-efficient approach allows employees to maximise their savings. At The Electric Car Scheme, employees can save between 30% and 60% on any electric car by reducing their salary in exchange for the car.
What is a credit check?
It is important to understand what a credit check is and why it’s carried out. For individuals, a credit check is a process used by lenders and financial institutions to determine an individual’s creditworthiness. It involves accessing an individual’s credit report, which contains information on their borrowing history, like loans and credit agreements they have had before. This report includes details on any missed payments which can also affect a person’s credit score.
For companies, credit checks are a business-to-business process used to understand the financial security of a company to make an informed decision on the level of financial risk.
Let’s explore how credit checks work for electric car salary sacrifice
Do you have to pass individual credit checks for electric car salary sacrifice?
In terms of electric car salary sacrifice, you do not have to pass an individual credit check. This is because all salary sacrifice leases are business contract hires instead of personal contract hires, which means the company or employer is technically leasing the vehicle on the employee’s behalf. The credit for any vehicle on the scheme is obtained in the company’s name against its credit profile. The company then gives you sole access to the vehicle for the lifetime of the lease and you have to pay for the vehicle from your pre-tax salary. This means you do not have to worry about your credit score with any salary sacrifice scheme.
As an employer, what credit checks happen for EV salary sacrifice?
For an employer to lease a vehicle from a lease provider, the employer must pass a credit assessment completed by the lease provider. The lease provider ultimately wants to understand whether or not the employer is likely or not to meet payments over the whole lease period - in short, is the employer creditworthy?
What company information can be used in a credit check?
Accounts - overview of the latest financial year to understand profitability, cash flow and equity.
Management accounts - provide a to-date financial position since the last “year-end” - this is to obtain a more recent picture of the company’s financial position.
Bank statements - this will show transactions in and out and is used to understand the payment behaviour
Directors ID - this is needed for KYC checks. KYC stands for know your customer and these checks help to increase trust and safety in financial transactions - ultimately to reduce the risk of fraud.
It's crucial to highlight that the leasing provider typically relies on Companies House for obtaining the aforementioned information. If all required details are accessible on Companies House, additional information requests are generally not made. However, if the data on Companies House is outdated, the leasing provider may inquire about the period since the last Companies House update.
How does the lease provider determine the strength of a company?
In the case of electric car salary sacrifice, the company has to pass a credit check completed by the lease provider. The table below shows how the lease provider determines the strength of a company:
| Criteria | Positive | Negative |
|---|---|---|
| Age | 2 or more years of trading | Less than 2 years of trading |
| Profitability | Recent accounts show trading at a profit | Recent accounts show trading a loss |
| Net Assets | Recent accounts show Net Assets are positive | Recent accounts show Net Assets are negative |
| Flags | No flags | CCJs, accounts are overdue, etc. |
In short, electric car salary sacrifice schemes require company credit checks but do not require individual credit checks. This is because EV salary sacrifices are business contract hires, which means the company is technically leasing the vehicles on the employee’s behalf.
Interested in learning more about The Electric Car Scheme?
83% of employers are looking to implement an electric car salary sacrifice scheme in 2024 - it is a great way to contribute to ESG goals, boost employee retention and attract talent. If you’re an employer, you can learn more about what we do at The Electric Car Scheme by visiting our website.
If you’re an employee and your company doesn’t offer electric car salary sacrifice as a benefit, you can learn more about it here and even fill out a form to convince your employer.
