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.

Salary sacrifice schemes are almost identical for electric and more conventional ICE (internal combustion engine) cars, but for one significant detail: 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 was 6% for the 2019/20 financial year, then:

  • 0% for 2020/21
  • 1% for 2021/22
  • 2% for 2022/23.

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.

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What is Salary Sacrifice for cars, and why would you offer it to your employees?

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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 0% for 2020/21, 1% for 2021/22, and 2% for 2022/23.

What are the benefits of electric car salary sacrifice?

  1.  
    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
  2.  
    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?

  1.  

    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 0-2% 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.

Typical salary sacrifice electric car prices

Monthly costs will depend on the car, your salary and your lifestyle, but here are some broad examples to give you an idea of how much an electric car costs on salary sacrifice:

Car
Range
Basic monthly cost
Gross monthly sacrifice
Net cost to employee
Mini Hatch – Cooper S 33kWh 2
144 miles (WLTP)
£396
£474
£289
Hyundai Kona – 64kWh
278 miles (WLTP)
£442
£535
£328
Polestar 2 – 78kWh Pilot*
292 miles (WLTP)
£449
£646
£397

*For illustration purposes only. Example based on 40% tax payer, 36 months and 15000 miles per annum. Road fund licence, manufacturer servicing, breakdown cover, fully comprehensive insurance and one vehicle charge point are included for the duration of the term

Is electric car salary sacrifice worth it?

If you want to drive a new electric car, yes.

In the ‘Thinking of EV? Salary sacrifice’ podcast, Matthew Walters, LeasePlan’s Head of Consultancy and Customer Data Services, says: “With a 0% company car tax tariff […] those vehicles, through salary sacrifice, become phenomenally cost-effective and very, very cheap”.

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”.

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