Electric Car salary sacrifice scheme – what do you need to know?
If you are looking to buy an electric car, you may be interested in learning about the benefits of an electric car salary sacrifice scheme. This scheme allows employees to save money on their new electric vehicle purchase by making monthly contributions from their pre-tax income. In this blog post, we will discuss the details of this scheme and how it can help you save money on your new purchase!
What is an electric car salary sacrifice scheme?
Electric car salary sacrifice schemes are becoming increasingly popular as a way to save money on electric vehicle purchases. The scheme works by employees making monthly contributions from their pre-tax income towards the purchase of an electric vehicle. The monthly payment is made using the employee's gross salary (income before tax or net salary + employee's national insurance + income tax). This means that employees can typically save around 30% on the total cost of their new car.
The scheme works in the same way as the other salary sacrifice arrangements.
How to find the best electric car salary sacrifice scheme for you
There are a few things to keep in mind if you are interested in using an electric car salary sacrifice scheme. First, you will need to find an employer who is willing to offer the scheme. Second, the vehicle must be purchased through a salary sacrifice arrangement – this means that you cannot purchase the vehicle outright or finance it through a traditional loan. Finally, you will need to make sure that you can afford the monthly contributions.
How does the scheme work?
In most instances, the company first rents an electric car from a supplier. The employee is then given the option to rent this car in exchange for a part of their salary. The electric car is usually maintained by a third party chosen by the company if it opts for a fully maintained contract, which typically includes routine services, repairs and MOT tests. If you decide to rent the company car, the employer uses that part of your untaxed salary to pay for the electric car.
What electric car models are eligible as part of the salary sacrifice scheme
The scheme is available for a wide range of electric car models. Some of the eligible models include but aren't limited to the BMW i-Series, the Tesla Model S, and the Nissan Leaf.
Benefits of EV salary sacrifice for employers?
There are several benefits of electric car salary sacrifice schemes for employers and employees.
Firstly, for the employers, these schemes can enhance the benefits package to employees which helps to attract and retain staff. in addition, to boosting morale and motivation it can also reduce the carbon footprint of the company and support the organisations corporate social responsibility goals. Not to mention, all the above benefits can have a positive impact on the bottom line of the company!
For employees, this scheme can help to save money on the purchase of a brand-new electric car and lower the cost of ownership, with no initial upfront costs. It will also put employees in a great position ahead of the 2030 diesel and petrol ban.
Is the EV Salary sacrifice a benefit in kind?
Yes, the EV salary sacrifice is considered a benefit in kind. This means that employees will be responsible for paying income tax and National Insurance Contributions on the value of the vehicle. However, they will still save money on the purchase price of the vehicle!
What costs aren't included for employees in the EV salary sacrifice scheme?
There are a few costs that are not included for employees these are:
- Any monthly payments towards the purchase of the EV.
- Insurance costs associated with the vehicle.
- The car's battery charging costs
- Benefit in Kind (BiK) rates
Electric Car Salary Sacrifice example:
Salary £/yr: £50,000
Car cost per month: £500
P11D value of car: £35,000
Saving for you:
£248 per month or £2,980 a year.
Saving for your employer:
£65 per month or £780 a year.
Car cost with "salary sacrifice":
£252 per month or £3,020 a year.
Car cost without "salary sacrifice":
£500 per month or £6,000 a year.
Note, This is for the employee but does cover the savings for the employer on the employers NI.
The P11D value that HMRC uses is the list price minus the government EV grant.
If you need advice or guidance regarding the above scheme, then please contact Donna Banks, Tax Manager or Stav Stavrou, Payroll Manager.