Can I use a salary sacrifice scheme to pay for an electric vehicle?
Yes you can. Salary sacrifice schemes make electric vehicles more affordable for many people.
With the rising cost of fuel, you may have found yourself considering the switch to electric vehicles (EVs). And if so, you aren’t alone - according to the Department for Transport there are now more than a quarter of a million electric cars on UK roads and demand is growing every month.
Here we cover everything you need to know about using a salary sacrifice scheme to pay for an electric vehicle. The key points:
- Salary sacrifice means an amount is deducted from your gross salary in return for a benefit
- There are great tax savings to be made with salary sacrifice
- Using a salary sacrifice scheme to pay for an electric vehicle can save you up to 40% of the total cost of an EV
- Electric car salary sacrifice schemes benefit both employers and employees in lots of ways
What is an electric car salary sacrifice scheme?
We’re all familiar with the workplace cycle-to-work scheme. Well, the electric car salary sacrifice scheme is basically the same, just faster.
Essentially, salary sacrifice is a scheme whereby an employee will give up part of their gross salary – that’s before any tax or other contributions are deducted – in return for a benefit. Like a bike. Or a car. So an electric car salary sacrifice scheme allows you, as an employee, access to a more affordable electric vehicle.
How does salary sacrifice work for electric cars?
As a relatively new concept, EV salary sacrifice schemes aren’t always understood. In a nutshell, your company leases an electric vehicle from a supplier, such as Octopus Electric Vehicles, and you then pay for it through your employer via a deduction from your gross pay. This salary sacrifice for the car means you then save on tax and National Insurance deductions.
You do, however, pay Benefit in Kind tax (BiK). For electric vehicles this is currently only 2% - and will remain so until at least 2025 (we're campaigning to keep this lower for longer by the way, please get involved).
This means using a salary sacrifice scheme to pay for an electric car is a tax-efficient, and attractive benefit to employees.
With Octopus Electric Vehicles, our salary sacrifice scheme is as easy as 1, 2, 3:
- Sign up to the scheme. Take advantage of our salary scheme through your employer. If they've not joined yet, send them our way. It's quick, easy and free to join, with zero startup fee or deposit required.
- Choose your electric car. This is the really fun part. Speak with our expert team to discuss your EV needs, order your car and we'll deliver to you as soon as it's available.
- And ride. All of your payments are taken from your salary automatically, so you have no extra bills to worry about. Our dedicated team are on hand to support you, whenever you need it.
You get the full package with our salary sacrifice scheme. We offer everything you need to hit the road in addition to your car: charger, energy, insurance, servicing, maintenance, breakdown and even replacement tyres.
What are the benefits of an electric car salary sacrifice scheme?
An electric car salary sacrifice scheme is beneficial for both employees and employers.
Benefits of electric car salary sacrifice scheme for employees:
- The most cost-effective way to drive an electric car - you save up to 40%. Not to mention the savings on fuel costs.
- Access to brand new vehicles that you might not otherwise be able to afford.
- You’ll be playing your part in the fight against climate change, saving 1.5 tonnes of CO2 every year by switching to a zero-emissions electric car.
Benefits of electric car salary sacrifice scheme for employers:
- Hit your sustainability goals as an employer. An electric vehicle salary sacrifice scheme helps your business to reduce its carbon footprint, with no cost to the company.
- Save on National Insurance Contributions.
- Retain and attract top talent with a boost to your benefits package. 75% of employees are more likely to stay with their employer because of their employee benefits package.
- Free to set up and easy to run. It costs nothing to set up and is easy to manage with our HR portal. Minimal admin. Maximum team happiness.
What are the drawbacks of an electric car salary sacrifice scheme?
You can't really call it a drawback, but it’s worth explaining what Benefit in Kind (BiK) (or company car tax) is. Essentially it’s a tax employees have to pay in return for a perk or benefit related to their employment.
All cars, including EVs, have a certain level of BiK tax to be paid, determined by taking a percentage of the vehicles’ cost, based on its level of tailpipe CO2 emissions. The more CO2 the vehicle outputs, the higher the tax is, which for a zero emission electric vehicle is a good thing. This means that the BIK for electric cars is very low - currently 2%. For comparison, petrol and diesel company cars are taxed at rates of up to 37%.
2% BIK of the vehicle's list price is a small price to pay then considering just how much you could be saving on VAT, income tax, and national insurance contributions.
A small price to pay considering you’re saving on VAT, Income Tax and National Insurance Contributions.
Other drawbacks include the risks of an employee leaving the company mid-way through their contract. We offer protections for instances like this to mitigate the risk, including the option to transfer the EV to another member of your team, or returning it early under our early termination protections.
How to work out savings using a salary sacrifice scheme to pay for an electric car
Using a salary sacrifice scheme, you pay for the electric car out of your gross salary each month, and you pay company car tax (or BiK) from your monthly salary too. This, combined with the savings in tax, gives you the total cost for running the electric car on a salary sacrifice scheme.
Let’s use an example here for ease. Say Seb lives in Shoreditch and his salary is £35,000 a year. This means his monthly gross salary is £2,917. He is looking to get a MG ZS EV Long Range (RRP: £31,440) and wants a lease term of 36 months, anticipating the mileage to be around 5,000 miles per year.
Below are two options - one of leasing an electric car using Octopus Electric Vehicles’ salary sacrifice scheme, and one without:
So, the monthly difference in Seb’s take-home pay when using a salary sacrifice scheme to pay for his electric vehicle is £376, with the reduction in Income Tax from £374 to £264 and NI from £254 to £181 - meaning he’s saved £183!
What car can I get on salary sacrifice?
What car you can get on a salary sacrifice scheme depends on the provider. With us, you can choose from the best electric cars on the market, with over 65 models available from all the top manufacturers including Audi, Tesla, Polestar, VW, KIA, Nissan, and Mercedes.
The bottom line of using a salary sacrifice scheme for an EV?
Using a salary sacrifice scheme is a way of giving up a part of your salary in return for driving an electric car - which, thanks to some tax advantages, is much cheaper than buying an EV outright.
Employer? Show your team you care, about them and the planet, with a salary sacrifice scheme for electric cars. Free to set up and simple to run. Learn more about how you could get going with salary sacrifice in as little as two weeks.