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How does electric car salary sacrifice work? An easy step-by-step guide


How does electric car salary sacrifice work? An easy step-by-step guide

Leasing an electric car through salary sacrifice is an employee benefit that enables workers to lease a vehicle using their pre-taxed income. This can save them up to 40% on the cost of leasing a brand-new electric car. Along with being a very tax-efficient way to drive a great electric company car for the employee, an electric car salary sacrifice scheme also has several benefits for the employer too.

In this guide, we look at the easy step-by-step process of setting up an electric car lease salary sacrifice scheme for a business, outlining the benefits for both employers and their employees.

Photo of electric vehicle with power plug inserted during charging session at service station

The benefits of an electric car lease salary sacrifice scheme

There are several benefits of electric car leasing through a salary sacrifice scheme. We have split them into benefits for employees and for employers.

Employee benefits of leasing an electric car through salary sacrifice

  • Leasing an electric car through a salary sacrifice scheme is the most tax-efficient way of driving an electric car, which can save the employee up to 40% on the lease cost when compared to a standard lease.
  • Employees leasing an electric car through salary sacrifice are able to drive a brand-new electric car for work and personal use at a heavily discounted cost, thanks to tax and National Insurance Contributions (NICs) efficiencies.
  • There are no up-front payments or credit checks needed, as there would be with a personal lease or other kinds of car finance.
  • If the company chooses the relevant option, the monthly payment can also include electric car insurance and maintenance, making it a hassle free way to lease a car.
  • Company car drivers must pay Benefit in Kind (BiK) tax, but with electric cars benefitting from BiK rates set at just 2% compared to up to 37% on petrol or diesel equivalents, the savings are even higher.
  • Employees who want to switch to an electric car for environmental reasons can feel great knowing their commute to work and play is helping improve air quality in their communities.

The benefits of an electric car lease salary sacrifice scheme for employers

  • Offering a salary sacrifice scheme can be seen as a major benefit to an employee, helping to attract and retain the best talent in the workforce.
  • Offering salary sacrifice means that employers pay less National Insurance Contributions (NICs) for all those employees who join the scheme.
  • There are often no set-up fees or running costs for employers offering an EV salary sacrifice scheme, with the leasing partner managing the processes and most of the admin (check with suppliers as offers may vary).
  • By leasing electric company cars, your business can contribute significantly towards your wider sustainability and net-zero goals.
Young businessman with backpack on the go at parking garage

What are the electric car tax benefits for those who offer or join a salary sacrifice scheme?

We’ve already mentioned that leasing electric company cars through a salary sacrifice scheme is tax-efficient, but here’s why:

  • With salary sacrifice schemes, the monthly payment for the electric car lease is taken from the employee gross pay before they are taxed, or other deductions are made from their salary. This means they don’t pay as much tax and have lower NICs.
  • A salary sacrifice scheme can help cut employer’s National Insurance Contributions (NICs) by around 13.8% and allow employers to claim capital allowances that reduce taxable profits.
  • As employees leasing electric company cars must pay tax, known as BiK, the great news is that BiK rates on electric vehicles are significantly lower than on petrol or diesel cars.

You can find more about the benefits of Salary Sacrifice here.

Car charger plugged on kiosk at charging station

How does car salary sacrifice work for employers?

The process of setting up a salary sacrifice scheme for employers is very straightforward. With ElectriX as your partner, you can experience:

  • No fees or admin charges and no up-front costs for you or your employees.
  • Minimal admin requirements for your business.
  • Free surveys to assess the appetite for a salary sacrifice electric car lease scheme in your business, and help communicating the benefits to interested employees.
  • Many cars delivered in as little as 30 days.
  • Protect your organisation from liability if employees leave

ElectriX offer Early Termination Protection to cover you should an employee leave during the duration of their leasing agreement.

There are three simple steps to take before you can start providing a highly flexible electric car lease salary sacrifice scheme to your employees.

You can find out more with our guide, Electric car salary sacrifice scheme explained for employers.

Other considerations when leasing electric company cars through salary sacrifice schemes

It’s always worth noting that leasing electric company cars through a salary sacrifice scheme will mean that employees receive less in their pay packet every month as a portion of their salary is taken away before other deductions are made. However, this is usually significantly outweighed by the tax benefits and other associated savings when compared with having separate bills for things such as:

● Monthly payments for a personal car lease or another kind of car finance repayments
● Electric car maintenance costs, such as servicing
● Electric car insurance
● Independent Home charger installation costs

It is also important to highlight that there are minimum wage thresholds for employees wishing to take part in a salary sacrifice scheme.

Some people worry that using an electric car lease salary sacrifice scheme could impact their affordability for financial products such as a mortgage application. The truth is that as long as the lender is made aware that the applicant is participating in the scheme, it should not impact a mortgage application.

If you want to find out more about offering salary sacrifice electric car leasing to employees of your business, get in touch.

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