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Your guide to electric car salary sacrifice
Salary sacrifice schemes can be one of the most cost-effective ways to drive an electric car.
What is electric car salary sacrifice?
An electric vehicle salary sacrifice scheme lets an employee pay for an electric car each month using their gross salary – that’s before tax and other contributions are deducted. It’s the same as other salary sacrifice schemes, such as childcare, cycle to work schemes or pension contributions.
Unlike some other benefits that you might take through salary sacrifice, an electric vehicle isn’t taxed based on the salary that you give up: instead you pay tax on the value of the benefit in kind (BIK) tax. BIK is the value of the benefit you receive – in this case, a car. It’s what has helped make salary sacrifice the cheapest way to own an electric car. For battery-electric cars, BIK tax is 1% for 2021/22, and 2% for 2022/23.
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How electric car salary sacrifice schemes work
A salary sacrifice car is a company car. Your company rents the car from a supplier, such as LeasePlan, and you rent it from your employer. You pay for the car using your gross pay, and your income tax is based on your remaining salary and the BIK value. Essentially, the same as what you’d pay anyway, but with a new, clean car for a cheaper cost.
What rules affect salary sacrifice?
OpRA stands for Optional Remuneration Arrangements – and it relates to legislation that was introduced in April 2017 to counter tax and national insurance avoidance on certain types of cash benefits. It changed the way some company cars were taxed - fortunately, it doesn’t affect electric cars on salary sacrifice. You can find out more about the legislation in our Funding and Tax Guide, produced in association with Deloitte.
What is Salary Sacrifice for cars, and why would you offer it to your employees?
What’s included with electric car salary sacrifice
There are no deposits or credit checks for salary sacrifice, and your monthly payment includes:
- Road tax
- Insurance
- Servicing and maintenance (including glass and tyres)
- Breakdown cover
- Accident management
If your company uses LeasePlan’s SalaryPlan salary sacrifice scheme, you can choose an electric vehicle from an approved list every two to three years. At the end of the contract, you can exchange the electric car for a new one, buy it, or simply hand it back*.
*Subject to excess mileage and fair wear and tear charges
What do you need to pay for?
When it comes to electric vehicle salary sacrifice as an employee there are just three things you need to pay for.
Rental
This is the cost of the car. Your employer cannot charge you more than it costs them to rent from the leaser. The cost of the rental is deducted from your gross pay.
Power
For an electric car, you just need to pay for the cost of the electricity required to charge your car. This generally works out at around £2 to £4 per charge on a car with a 250-mile range.
Tax
Benefit in Kind tax (BIK) is 1% for 2021/22, and 2% for 2022/23.
What are the benefits of electric car salary sacrifice?
- For employees
- The most cost-effective way to drive an electric car
- Zero tail pipe emissions
- All servicing, insurance and road tax costs covered
- You can upgrade to a new vehicle after a couple of years, depending on your employer’s rental agreement
- You pay with your gross salary, rather than taxed net pay
- You can insure your partner or family member on the car
- You can use the car for business and personal use
- For employers
- Lower ‘grey fleet’ risks and mileage expense claims
- Improved staff recruitment and retention
- Lower carbon footprint
- Potential to offset against salary increments
- Delivers an ‘All employee’ benefit (so long as payments don’t take employees below minimum wage)
- Encourages low-emission motoring
- Improved productivity from focused, motivated staff
- Easier to attract and retain experienced members of staff
What are the drawbacks of electric car salary sacrifice?
If you want to drive an electric car and your employer offers a salary sacrifice scheme, there are no specific drawbacks.
- Range was once a common concern with electric cars, but many now boast 250 miles or more per charge.
- Electric cars’ list prices are generally quite a bit higher than their petrol or diesel counterparts – but then running costs and 1-2% BIK swing monthly fees back in electric’s favour. You can compare prices in our examples further down the page.
- You won’t actually own the car – this is the same as if you already lease your car, pay for it on finance, or have a company car. At the end of the salary sacrifice contract, you may have the option to buy the car outright.
- Once the car has been paid for, your salary must remain at or above the national minimum wage – it cannot be based on household income.
Is electric car salary sacrifice worth it?
If you want to drive a new electric car, yes.
Caroline Sandall, a specialist fleet consultant, says: “We’re not just talking about pure affordability, but being able to access vehicles that [employees] otherwise could not afford if they were dealing on a purely retail basis”.
Important links and information about electric car salary sacrifice
For more information about electric cars and salary sacrifice, LeasePlan has a range of useful articles, guides, podcasts and more. Head to LeasePlan Insights for:
- Explained: The latest salary sacrifice changes, a guide to everything you need to know about salary sacrifice, by Matthew Walters, LeasePlan’s Head of Consultancy and Customer Data Services
- The electric vehicles and salary sacrifice Fleet Navigator podcast, presented by Matthew Walters and fleet consultant Caroline Sandall
- Salary sacrifice car schemes – 4 key questions – if you’re a business owner, fleet manager or HR manager, these are the four things to think about if you’re interested in setting up a salary sacrifice scheme
- Essential guide: Fleet Funding and Taxation 2020/21 – our annual report, written in association with Deloitte. Find out what’s inside then download the guide (pdf)
What can you do next?
If you’re an employee interested in salary sacrifice – speak to your employer and put them in touch with us. Our consultancy team would love to help. If you’re a business owner, HR manager or fleet manager – get in touch:
Email us: marketing@leaseplan.co.uk