Your guide to salary sacrifice for electric vehicles

As more and more drivers switch to electric cars, and as the 2030 deadline on petrol and diesel sales looms, plenty of employers are considering shifting their fleets from traditional carbon vehicles to electric cars.

Done correctly, driving an electric vehicle can be economical for both you and your employees, as well as being better for the environment.

Salary sacrifice is a popular method used to get your employees driving electric cars, and in this article, we explain how it works, how to do it, and whether it’s worth it.

What is salary sacrifice for electric cars?

An employee who participates in an electric vehicle salary sacrifice programme can use their monthly gross pay - is their income before taxes and other contributions - to pay for an electric car.

(Similar salary sacrifice programmes exist for childcare, bike-to-work programmes, and pension contributions.)

An electric vehicle, unlike certain other perks that you could receive through salary sacrifice, is taxed based on the value of the benefit in kind (BIK) tax rather than the salary that is sacrificed.

The advantage you receive— in this case, a car—is valued at BIK, and as a result salary sacrifice is the most affordable way to purchase an electric vehicle.

The BIK tax for battery-electric vehicles is 1% in 2021–2022 and 2% in 2022–2023.

How does an electric vehicle salary sacrifice work?

We secure you an electric vehicle, which your business then rents on a business contract rental basis.

The employee then covers the expense through their salary sacrifice.

At the end of the lease term, you return the vehicle and pay for any excess damage (beyond normal wear and tear) or excess miles when the lease expires.

What are the advantages of a salary sacrifice programme for electric vehicles?

In the majority of circumstances, an electric vehicle salary sacrifice arrangement is good for both employees and employers.

Electric vehicle salary sacrifice advantages for employees

For employees, an EV salary sacrifice arrangement allows them to drive a brand new electric car for a lot less than if they were to lease one privately. Their income tax and National Insurance Contributions are calculated based on their lower, revised wage after deducting the cost of the car, which lowers the amount of income tax and NIC they pay each month.

You may also be able to recoup the VAT on the leasing and maintenance fees. You can’t recoup these if leasing an EV privately, therefore you may be able to enjoy even bigger savings this way. Generally, the consequence for an employee (after paying a little Benefit in Kind tax) is a 30-60% discount.

Moreover, electric car salary sacrifice schemes are very comprehensive. Most include all servicing and maintenance charges, unlimited tyre replacements and repair, fixed-cost comprehensive motor insurance, road tax for your car, and full vehicle roadside breakdown and recovery assistance for the term of the contract.

Electric vehicle salary sacrifice advantages for employers

When you lease a zero-emission company car on business terms and your employee makes a sacrifice from their gross compensation to pay for the lease (including insurance), this results in monthly national insurance savings for you as the employer, because pure-electric cars offer excellent benefit-in-kind savings. You and your employee both benefit financially as a consequence.

An EV salary sacrifice programme not only contributes to a smaller carbon footprint for your business helping you with your decarbonisation strategy, but it also provides a significant perk to all of your employees. Additionally, it can complement any fleet management plans you already have in place.

If you’d like to talk to us about salary sacrifice, then just give us a call on 0800 043 2050, or email us at hello@conceptvehicleleasing.co.uk and we’d be delighted to chat it through.