In recent years, electric cars have become increasingly more popular as the shift towards more sustainable transportation has accelerated. As the UK government as well as governments overseas have been implementing policies to encourage electric vehicle (EV) adoption in the global effort to reduce carbon emissions; EV manufacturers unveil more affordable models leading to potential buyers considering making the switch to electric.
Despite the growing enthusiasm, the upfront cost of an EV prevents those interested from taking the leap. This is where the electric car salary sacrifice scheme comes in, making owning an EV more attainable. This financial arrangement not only makes EVs more accessible, but also offers desirable benefits for both employers and employees.
Whether you’re an employer thinking about offering EV salary sacrifice, or you’re an employee who finds this arrangement desirable and are looking for more information, in this blog from the Yorkshire Fleet team, we dive into how salary sacrifice schemes have potentially revolutionised the demand for EVs. By offering a cost effective pathway to EV ownership, these schemes help to promote sustainability within the workforce.
Understanding Salary Sacrifice For Electric Cars
Salary sacrifice has been around for a long time, which is essentially the financial arrangement where employees exchange part of their salary for a vehicle. Salary sacrificing for electric cars is no different. This agreement is not just about getting a new car; it involves an attractive package that includes insurance, maintenance, road tax and more. By combining these expenses in one monthly deduction from the employee’s gross salary, the scheme aims to simplify the financial aspects of obtaining an EV as well as making it more attainable and appealing.
How Does A Salary Sacrifice Electric Car Scheme Work?
If an EV salary sacrifice scheme sounds like something you would be interested in for your employees, then you may be wondering how an EV salary sacrifice scheme works. You’ll be pleased to know that it is not as complicated as you may have initially thought. The process begins with an employee picking an EV from the options provided by their employer or their vehicle partner. The cost of the car as well as any associated services included in the package, is then taken from the employee’s gross salary each month. Since this reduction is made before income tax and National Insurance contributions are calculated, this will in turn lower the employee’s taxable income. This results in employees having to pay less tax and National Insurance. So it’s a win-win situation.
Tax Efficiency And Benefits Of A Salary Sacrifice Electric Car Scheme
One of the most attractive aspects of EV salary sacrifice is the tax efficiency. The UK government offers Benefit In Kind (BIK) tax rates for EVs to encourage people to obtain them. BIK is a tax on employees who receive any benefits on top of their salary, for example if an employee has a company car for private use, they will have to either pay BIK or a company car tax.
The BIK percentage banding is based on CO2 emissions of the car, because of this, BIK rates are significantly lower for EVs compared to petrol or diesel cars, with the government’s goal of reducing greenhouse gas emissions. This policy makes the electric car salary sacrifice scheme even more financially appealing, as the BIK tax payable by the employee is much lower than the tax savings realised.
With EVs’ exemption from road tax and the lower ongoing costs of electricity compared to fossil fuels enhance the financial benefits. The combination of these factors with the additional environmental benefits of driving an EV, makes committing to the switch to a more greener transportation extremely appealing to employees.
Environmental Benefits Of Electric Car Salary Sacrifice Scheme
You’re probably not surprised to hear that EVs are so much better for the environment compared to typical petrol or diesel cars. Adopting an EV through a salary sacrifice scheme is the right step towards reducing one’s carbon footprint. Since EVs have zero tailpipe CO2 emissions, they help contribute to cleaner air as well as assisting with decreasing the effects of climate change. By making EVs accessible, salary sacrifice schemes can play a crucial role in speeding up the transition to more sustainable transport.
You’ll be pleased to learn that salary sacrifice electric car schemes are a win-win situation for both employees and employers. Employees gain access to new EVs at a reduced cost, with additional tax benefits and savings on running costs. On the other hand, employers benefit from reduced National Insurance contributions as well as improve their reputation for sustainability. As awareness of these schemes grows, they could significantly influence the automotive market, driving up demand for electric vehicles and contributing to a greener planet.
How EV Salary Sacrifice Has Impacted EV Demand
With the addition of EVs on salary sacrifice, this option has created an increase in demand for owning electric cars. Nearly half of company cars are pure electric in the UK as of 2023. These schemes have not only made EVs more accessible to a wider audience with the financial benefits, but have also helped to raise awareness about the benefits of electric mobility such as:
Increased Accessibility/Affordability: One of the main ways salary sacrifice schemes have increased demand for EVs, is they have made these vehicles more affordable, and as a result, more accessible. This is because these schemes minimise the financial burden associated with purchasing an EV, which has opened up the market to those who previously were turned away because of the cost of electric vehicles. Since you can spread the cost of the vehicle, including its maintenance and insurance, over several years without the need for a large upfront payment, this has made the idea of driving an EV much more appealing to a wide range of potential customers.
Financial Benefits Of Salary Sacrifice For Electric Cars
Purchasing EVs through salary sacrifice schemes presents a range of financial benefits for both employees and employers. These schemes are not only a contribution in increasing the uptake of EVs but also offer economic advantages, making them an attractive option for many companies and their staff.
Employee Benefits
Reduced Tax and National Insurance Contributions: One of the biggest contributors to the appeal of salary sacrifice schemes, is the potential for employees to reduce their income tax and National Insurance contributions. As the cost of an EV is taken from their gross salary, their taxable income is decreased, which results in less income tax and National Insurance that needs to be paid. This can result in savings, making an EV much more affordable than if purchased outright or through other financing methods.
Cost-Efficient Access To New EVs: Employees benefit from the ability to access new EVs without the need for a substantial upfront payment, which can often be a barrier to them owning an EV in the first place. This approach not only makes it financially easier to drive a cleaner, more technologically advanced vehicle but also allows for a predictable monthly expense that covers not just the car but often its insurance, maintenance, and sometimes even charging.
Lower Running Costs: EVs typically have lower running costs compared to their petrol or diesel counterparts. The cost of electricity for charging an EV is generally cheaper than buying fuel, and EVs have fewer moving parts, which can lead to power maintenance costs. Employees using salary sacrifice schemes can maximise these savings further, enhancing the financial attractiveness of choosing an EV.
Benefits For Employers
Reduced National Insurance Contributions: One of the benefits of salary sacrifice for electric cars for employers is paying lower National Insurance contributions. Since the employee’s gross salary is reduced by the cost of the EV, the employer’s National Insurance liability decreases. This saving can be significant, depending on the number of employees participating in the scheme.
Enhanced Sustainability: By endorsing the transition to EVs, companies can enhance their sustainability reputation. This can potentially result in indirect financial benefits, such as improved brand image, increased customer loyalty, and even potential advantage in attracting new talent who can prioritise environmental responsibility in their employers.
Employee Satisfaction and Retention: Offering innovative benefits like an EV salary sacrifice scheme can increase employee satisfaction and retention. Satisfied employees are more likely to stay with a company, reducing turnover costs and the expenses associated with recruiting and training new staff. Additionally, such schemes can serve as a powerful tool in attracting new talent, particularly those who are environmentally conscious or value financial savvy in their benefits package.
Discover The Yorkshire Fleet EV Salary Sacrifice
When looking for the right fleet management company for salary sacrifice for EVs, then look no further! At Yorkshire Fleet we offer fully insured electric and hybrid vehicles to lease with zero upfront cost! With our network of partnerships with leading EV manufacturers means that you have access to a wide range of vehicles. This combined with our commitment to customer support, means that we’re a fantastic choice for companies aiming to implement an EV salary sacrifice scheme that not only benefits your employees but the environment!
Contact Yorkshire Fleet today for an EV salary sacrifice scheme that is compatible with your employees and your company.
