EV salary sacrifice can make your business money. If you set it up right.

Most businesses think of EV salary sacrifice as a nice-to-have employee benefit, or a tick in the sustainability box.

But here's what fewer people realise: done right, it can actually make your business money.

The difference between an EV salary sacrifice scheme that costs you nothing and one that puts cash back on your organisation’s balance sheet comes down to three things: 

• The provider you choose 
• How you treat National Insurance 
• Your VAT set up 

One big difference between providers is the way they treat the tax savings your organisation makes through EV salary sacrifice. Some providers reserve the savings as ‘admin fees’ or to cover their own costs. So you never actually see the money HMRC gives back. 

With Octopus EV, you’re in control. You choose what to do with the tax savings you make. So, on to those savings.

When an employee sacrifices part of their salary for an electric car, their gross (or pre-tax) pay goes down. That means you pay less employer National Insurance on their wages. So far, so simple.

But there's a nuance here that can trip up some businesses.

Class 1 National Insurance is what you pay on your employees' cash earnings, aka their salary. When salary sacrifice reduces their gross pay, your Class 1 liability goes down. These savings are real and immediate.

Class 1A National Insurance is the tax you (as a business) pay on ‘benefits in kind’, including the company car itself. When you provide an electric car as a benefit, HMRC treats it as a taxable benefit, and you pay Class 1A on it.

The good news? The Class 1 savings you make are often large enough to cover your Class 1A bill entirely. And then some.

Our recommended approach: Pass back 10% of your National Insurance savings to your team to reduce the cost of their cars.

Here’s how it stacks up if you do this.

In this example the employer has helped incentivise more of their team by reducing the cost of their car, through passing on the savings. The numbers are based on an employee earning £90k, taking a 3 year contract on the Jaecoo E5 Luxury, driving 10,000 miles/year.

If you don’t pass the tax savings back to your employees, here’s how it stacks up: 

In this example the employer has not passed any of the employer National Insurance back their team. The numbers are based on an employee earning £90k, taking a 3 year contract on the Jaecoo E5 Luxury, driving 10,000 miles/year.

With Octopus EV, that's up to you. Genuinely. Unlike some providers, we don't take a cut of your tax savings as an ‘admin fee’. Whatever your business saves is yours to use however you like.

Here are four ways our customers put those tax savings from EV salary sacrifice to work:

Pass some of the savings on to your team by reducing the amount they sacrifice each month. It makes the scheme more attractive, improves uptake, and signals that you're not just running it for the tax break. It's a win-win — and it's what we'd suggest if you're not sure where to start.

Use the savings you make to pay your Class 1A National Insurance bill. This is the tax you, as an employer, pay on ‘benefits in kind’, including company cars. Your savings could cover your entire Class 1A bill, and leave you with cash left over.

There's always a small risk that an employee leaves mid-lease and hands back the car. We offer early termination protection to cover most scenarios, but it doesn't cover every situation. Some businesses choose to set aside a portion of their savings as a contingency fund — a sensible belt-and-braces approach.

Your finance director will love you for it. The savings go straight to your bottom line. There's no rule that says you have to pass them on. If your business needs the cash or wants to reinvest it in other ways, go for it.

If your business is VAT-registered, there's another layer of savings available to you.

Under HMRC rules, you may be able to reclaim a portion of the VAT on the lease cost of electric vehicles used for business purposes. How much you can reclaim depends on your VAT setup — specifically whether the cars are used exclusively for business or for mixed personal and business use.

The key point: with Octopus EV, you keep the VAT you recover. Some salary sacrifice providers cream off this saving as part of their fee structure. We don't. What HMRC gives back to your business, your business keeps.

How much VAT you can reclaim will vary. We'd always recommend speaking to a tax advisor or your accountant to understand exactly what applies to your situation.

EV salary sacrifice can do more than tick a sustainability box. With the right setup, the National Insurance savings can cover your benefit-in-kind (or Class 1A) liability. and still leave money on the table. The VAT recovery adds further upside.

Other providers take those savings as an admin fee. With Octopus EV, you're fully in control of how the money works for your business.

Want to see the numbers for your organisation? Get in touch.  

Tax rules can change and individual circumstances vary. Always speak to a qualified tax advisor before making decisions based on potential savings.