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Electric car salary sacrifice – what are the benefits?

With the cost of living increasing and employees looking for ways to be more cost efficient and eco-friendly, electric vehicles are becoming increasingly more attractive than petrol and diesel vehicles. In 2021 electric car sales increased by 76% and it is envisaged that sales will continue to accelerate, especially with the 2030 ban on new petrol and diesel vehicle sales on the horizon.

Employers can offer employees an electric vehicle by way of a salary sacrifice scheme as part of an employee’s benefits package.  Salary sacrifice schemes allow an employee to pay for the electric car each month using their gross salary before any deductions are made from their monthly salary. Essentially employers lease the vehicle from a supplier and rent the vehicle to the employee, who will pay a monthly fee by way of salary sacrifice.  The employee then pays benefit-in-kind tax, which is 2% for EVs this tax year. Some suppliers also offer complete packages, which includes any maintenance and service costs.

There are a number of benefits to both employers and employees for participating in such schemes. As the employee pays for the vehicle using their gross salary, their monthly salary is reduced meaning their income tax and NI payments are also reduced.

Employers will also benefit from a reduction in National Insurance contributions due the reduction in the employee’s salary.

Electric vehicles will also considerably reduce fuel costs for both employers and employees, as running costs are cheaper and fuel expenses are much lower for employers than petrol or diesel cars. In addition, offering such schemes may be attractive to employees and offer added value in working for the company, increasing recruitment potential and retention of employees.

An electric car scheme may also play an important part of company’s net zero goals.

For employers considering an electric car salary sacrifice scheme, it is important to ensure that there is an agreement in place in relation to the provision of the electric vehicle and the terms and conditions of the arrangement are clear. It would be advised to implement a clear policy in relation to insurance, tax, MOT, maintenance, fuel costs etc.

In addition, it’s important that any agreement and policy covers what happens if the employee leaves their role and ends the scheme early, as employers may incur a fee for early termination.

If you’re considering implementing an electric car scheme and need help drafting an agreement and appropriate policy, please speak to a member of the employment team.

A White hybrid car connected to an electric battery charging point.