What is a salary sacrifice scheme for electric cars?
There are many savings you can benefit from by making the switch to an electric car.
Electric cars have lower running costs than petrol or diesel, and charging is usually cheaper than refuelling. A salary sacrifice scheme is another great way to save. CarSupermarket.com’s experts have put together a guide to help you understand how salary sacrifice works for used EVs.
A salary sacrifice scheme for an electric car means you make a monthly payment towards leasing an EV – with the money taken from your gross salary.
This means the money is paid before income tax or national insurance is deducted from your salary, leading to savings for both employees and employers.
In salary sacrifice schemes, companies lease electric cars from a supplier. Employees are then offered the option to lease the car in exchange for a monthly payment from their salary – hence the name ‘salary sacrifice’.
Employees will also be responsible for HMRC taxes on the electric car salary sacrifice scheme. This is known as Benefit in Kind (BiK) tax. The rate for this is lowest for electric cars, so you’ll only pay tax on 2% of the car’s value. This rate is set to rise in 2025, but only by a few percent over the course of several years.
Companies can opt for a fully maintained contract, which will mean that the electric car is serviced, repaired, and MOT tested by a third party. The schemes generally last between two and four years and mean you can use your EV for both business and personal trips.
EV salary sacrifice is the same concept as other schemes workplaces typically offer, like the cycle-to-work scheme or a pension scheme - you can only benefit from a salary sacrifice scheme if your company offers one.
Road tax guide for electric cars.
A salary sacrifice scheme for an electric car shouldn’t be confused with company cars, which we’ve covered in more detail along with BiK rates, in our road tax guide for electric cars.
If you’re still wondering how an electric car salary sacrifice would actually work, we’ve put together an example so you can visualise the savings.
You’ve found a used Tesla Model 3 for £300 per month
On a salary sacrifice scheme, you’ll pay £240 per month (if you’re on a 20% income tax rate)
If you’re on a 40% income tax rate, you’ll pay £180 per month
You’ll also pay Benefit-in-Kind (BiK) tax. For a Tesla Model 3, this would typically be between £30 and £40
What are the benefits of an EV salary sacrifice scheme?
For employees
Payments are made from your salary before income tax and national insurance, saving you money
Payments are fixed and tax free
There’s no initial up front cost, which can be a sticking point for many people
Many schemes cover insurance and maintenance costs like services, repairs, and MOTs
You may be able to afford more expensive electric cars
Electric cars typically have lower running costs than petrol or diesel cars
You’ll pay lower Benefit in Kind (BiK) rates on electric cars
For employers
You’ll save on Class 1A National Insurance contributions (NIC)
It’s a significant company benefit, potentially improving employee recruitment and retention
Business mileage reimbursement costs can be reduced
Use of EVs can support social responsibility goals
Salary Sacrifice for Buying a Used EV
In recent years, the popularity of electric vehicles (EVs) has surged, and with it, various ways to make them more affordable. One such method is salary sacrifice, an arrangement where you give up part of your salary in exchange for a benefit, like driving a used EV. This can be an attractive option for many, offering potential tax savings while allowing you to drive a more eco-friendly vehicle. However, before jumping in, it's important to understand how salary sacrifice works, the benefits, and the potential drawbacks. Below, we’ve answered some of the most common questions to help you decide if this option is right for you.
Can I buy a used electric car on salary sacrifice?
There are many salary sacrifice schemes for used electric cars, which can lead to even more savings.
Given that used EVs are much cheaper than brand new models, the monthly cost of leasing the car will be significantly lower – but still include the same benefits, like maintenance costs being included.
It’s important to remember that you’ll have to select your used electric car from a range approved by your company’s scheme provider. You’ll normally get a selection of cars that are best suited to your budget.
Is salary sacrifice only for electric cars?
Salary sacrifice schemes aren’t only for electric cars, but emissions play a big role in the decisions companies make.
Electric cars are so popular on these schemes because they produce very little emissions, which means the Benefit in Kind (BiK) rate paid on them is lower.
In short, it’s cheaper for employers and employees to opt for electric cars on salary sacrifice schemes. For employees, monthly payments will likely be higher for petrol or diesel cars, as will running costs. For employers, National Insurance contributions (NIC) will also be increased.
Is electric car salary sacrifice worth it?
Electric car salary sacrifice schemes are a cost-effective option for both employers and employees.
Employees can enjoy substantial savings on used electric cars they otherwise may not be able to afford, while employers can benefit from lower National Insurance contributions (NIC) and an attractive offering for new and existing staff.
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