How does electric car salary sacrifice work?
The Electric Car Scheme has opened up an exciting opportunity for individuals in the UK to not only drive electric vehicles but also save a significant amount of money.
With the benefit of low benefit-in-kind (BIK) tax rates, continuous advancements in electric car technology, and the potential for substantial financial savings, our scheme has become increasingly popular.
In this blog post, we will explore how electric car salary sacrifice works, the advantages it offers, and how you can potentially save thousands by participating in this scheme.
Understanding electric car salary sacrifice
Electric car salary sacrifice enables employees to lease electric vehicles through their employers. By sacrificing a portion of their pre-tax salary, employees can access an electric car for personal use.
The sacrificed amount is deducted from their gross salary, reducing their taxable income and resulting in reduced income tax and National Insurance contributions. This process creates an opportunity for significant savings.
Let’s have a look at an example of how salary sacrifice works:
The salary sacrifice schedule
Typically, the salary sacrifice schedule spans over a fixed period, typically one to four years with The Electric Car Scheme. During this time, employees make monthly payments towards the lease of the electric car. These payments are deducted from their gross salary before taxes are applied, further reducing their tax liability.
It's an efficient and hassle-free way to drive an electric vehicle without worrying about upfront costs or ongoing maintenance expenses.
Low Benefit-in-Kind tax on electric car salary sacrifice
One of the most appealing aspects of opting for an electric car through salary sacrifice is the substantially reduced benefit-in-kind (BIK) tax rates.
BIK tax is calculated based on the car's list price and CO2 emissions. Electric vehicles, known for their zero tailpipe emissions, benefit from significantly lower BIK tax rates compared to conventional petrol or diesel vehicles. This means that employees who choose electric cars can enjoy substantially lower tax liabilities, resulting in substantial savings over the long term.
Starting in 2025, the BIK tax will go up by 1% annually. It will begin at 2% and reach 5% by 2028. This means that if you have a car lease extending into 2025 and beyond, you'll enjoy even greater savings.
Let's consider an example: if you lease a new electric car priced at £40,000 (when new) and you're subject to the 40% tax rate, you will now save an extra £320 for a full year with the car. This is fantastic news!
What happens if my employee leaves and I’m stuck with the salary sacrifice car?
At The Electric Car Scheme we understand that unexpected circumstances can arise, leading to the early return of an electric car leased through the scheme. To provide peace of mind and protect both the employer and employee from unforeseen costs and hassle, we offer first-rate protection that goes above and beyond.
✅ Dismissal from 2 months into the lease
✅ Redundancy from 2 months into the lease
✅ Resignation from 3 months into the lease
✅ Parental leave covered from Day 1
✅ Long-term sickness covered from Day 1
✅ Death covered from Day 1
✅ If your employee doesn’t pay, you’re covered from Day 1
When selecting a salary sacrifice provider for your business, one crucial factor to consider is the level of risk protection offered. The last thing you want is to be burdened with an electric car that is no longer required due to unforeseen circumstances.
That's why it's essential to choose a provider that offers robust risk protection, ensuring you have peace of mind throughout the lease period.
After reviewing the market, we can confidently say that we offer the best product in terms of risk protection. You can read more on our protection in our Explainer Pack here.
Your employees can save thousands of pounds with a salary sacrifice scheme
By combining the salary sacrifice scheme with the low BIK tax rates, employees have the potential to save thousands of pounds.
The reduced income tax and National Insurance contributions, coupled with the lower tax liabilities resulting from the low BIK tax rates for electric cars, can significantly reduce the overall cost of vehicle ownership. Over the lease period, these savings can add up, providing individuals with extra disposable income.
Helps your business attract and retain top talent with salary sacrifice
Offering The Electric Car Scheme demonstrates a forward-thinking approach and a commitment to employee well-being. In today's competitive job market, candidates often consider employee benefits as a key factor in their decision-making process.
By providing an attractive benefit like electric car salary sacrifice, businesses can differentiate themselves from competitors and attract top talent who value sustainable and cost-effective commuting options.
Don’t just take our word for it!
New research indicates that employees rate a salary sacrifice scheme offering electric cars as the most valuable flexible benefit. Nearly half of the surveyed employees considered salary sacrifice to be the most important benefit, followed by pensions at 37% and flexible working at 9%.
The research also revealed that over half of the employees (55%) would not have opted for an electric car if it hadn't been provided through a salary sacrifice car scheme. Factors influencing their decision to switch to an electric vehicle (EV) included the availability of workplace charging and the high costs of fossil fuel.
However, when asked about the single most important factor that prompted them to switch to an EV, more than three-quarters (78%) of respondents stated that it was the cost savings that could be enjoyed by making the switch.
There was overwhelming support for employers offering a salary sacrifice car scheme, with 62% of those surveyed stating that they would not consider working for an employer who didn't offer salary sacrifice cars as an employee benefit.
What additional benefits can you enjoy through salary sacrifice?
When you choose The Electric Car Scheme for ordering your electric car, we go above and beyond to make your experience hassle-free and all-inclusive. We understand that there are numerous extras and additional services associated with owning and maintaining an electric vehicle. That's why we take care of everything, ensuring a seamless and convenient process for you.
Here's what you can expect when you opt for The Electric Car Scheme:
Maintenance and Servicing: We’ll include maintenance and servicing as part of your electric car salary sacrifice agreement.
Tyres: Your electric car's tyres play a crucial role in performance and safety. We include tyre replacement and maintenance as part of our package.
Insurance: Insurance is a critical aspect of vehicle ownership, and we've got you covered. We provide comprehensive insurance coverage for your electric car, giving you peace of mind on the road.
Home Charge Point: As part of our commitment to supporting your electric car journey, we offer a home charge point installation service. Our partner, Smart Home Charge, will take care of installing a charging point at your residence, ensuring convenient and efficient charging at home.
The best part is that all these extras and services can be included in the salary sacrifice agreement, allowing you to enjoy tax savings on every aspect of your electric car journey. It's a win-win situation where you get to experience the benefits of electric car ownership while maximising your tax savings.
Learn more about The Electric Car Scheme
The Electric Car Scheme presents an excellent opportunity for UK businesses to embrace electric vehicles while saving a substantial amount of money. By taking advantage of the low BIK tax rates, combining them with the salary sacrifice scheme, and benefiting from continuous improvements in electric car technology, employees can save thousands of pounds over the lease period.
Now is an ideal time to consider participating in The Electric Car Scheme and contribute to a greener and more sustainable future while enjoying significant financial benefits. Book a call with our team here.
