Yes, but it’s dependent on how much they earn. If the salary sacrifice deduction takes their monthly take home pay below minimum wage, they won’t be eligible.
Complete Guide To UK Salary Sacrifice Electric Car Schemes 2024
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Get My Quotes08/04/2024
7 mins
The government has set out that it plans to ban the sales of new petrol and diesel cars by 2030. With this in mind, it’s no surprise that the popularity of electric cars is increasing.
But the problem for consumers is the cost. Electric vehicles (EV) are expensive and not easily available second-hand. This is where electric car salary sacrifice schemes take centre stage. Through a scheme, employees could save between 20-40% on the cost of leasing a brand new EV.
But what is an electric car salary sacrifice scheme? How do you set one up? And how much does it cost? In this guide, we’ll walk you through everything you need to know.
What Are Salary Sacrifice Electric Car Schemes?
They work like other salary sacrifice schemes, such as workplace pensions. A scheme is based on an agreement between you (the employer) and your staff. This agreement allows employees to sacrifice part of their gross monthly salary in exchange for leasing a brand new EV.
As the cost of the car is deducted from an employee’s gross salary, they benefit from Income Tax and National Insurance (NI) savings. As the employer, you’ll also get tax savings as you won’t make contributions on the amount your employee sacrifices. Most of the time though, employers give these savings back to their employees.
The best thing is, a scheme costs nothing to set up and provides employees with a highly valuable benefit.
What Cars Are Available On UK Salary Sacrifice Electric Car Schemes?
This depends on the scheme provider you choose and their availability. Common brands include: Tesla, Vauxhall, Porsche, Nissan, Fiat, Mini, Kia, Mercedes, BMW, Audi and more.
Most providers offer a broad range, so every employee has the chance to get a car that suits their needs.
What Leases Are Available On UK Salary Sacrifice Electric Car Schemes?
There are different lease periods available. Generally your employees will be able to lease an EV over two, three or four years.
Who Can Use Salary Sacrifice Electric Car Schemes?
As an employer. you can decide who can access a scheme. However as a minimum employees must:
- Be on a permanent contract
- Be paid via PAYE
- Hold a valid UK driving licence
- be able to afford the vehicle without going below minimum wage
- Not be planning on retiring during the life of the contract agreement.
Employees must also meet any eligibility criteria set out by the insurance provider that the leasing company uses. Most scheme providers offer insurance as part of the monthly cost, but staff can opt out of this if they wish to take out car insurance themselves.
What Are The Benefits Of Salary Sacrifice Electric Car Schemes?
There are many benefits to an EV salary sacrifice scheme for employers and employees.
Benefits Of UK EV Scheme For Employer
As well as being free and extremely easy to set up, salary sacrifice electric car schemes come with a host of other benefits for employers. These include:
Reduced National Insurance Contributions
Employees will make a monthly payment from their gross pay. As a result, their monthly net pay will reduce, and you, the employer, will pay less NI contributions.
To make the benefit even more attractive to employees, you can opt to pass the NI savings you make onto them. This would make the monthly cost even cheaper.
Reclaimable VAT
For vehicles that are leased, employers can claim 50% of the VAT paid within the lease payments. This amount is calculated into the employee’s gross sacrifice amount.
It’s important to note that if your company is not VAT registered, your employee will have to pay more.
Attracts And Retains Top Talent
Salary sacrifice electric vehicle schemes don’t just help with employee engagement. They can also help you attract top talent. This is because if your staff feel more engaged, they will be happier and less likely to search for a new role.
Potential new candidates are also more likely to be attracted to you as an employer if you offer a valuable employee benefits package. Not only that, an electric car is sustainable and over a third of UK workers would decline a job offer if the company didn’t align with their own environmental issues.
It can cost around 30-40% of a leaver’s salary to hire a new employee. With this in mind, it’s important to consider how an employee benefits package can help retain staff.
Nadeem Farid
Head of Employee Benefits at Drewberry
Reduces Company Carbon Footprint
Introducing an EV scheme can help your business hit its sustainability targets. It can also encourage a wider green culture across your company, which will also help you on your path to net zero.
Benefits Of UK EV Scheme For Employees
The benefits are just as good for employees when it comes to an EV salary sacrifice scheme. These include:
No Upfront Fees
With the cost of living increasing all the time, saving a large cash sum for a car isn’t as feasible as it might once have been. With a salary sacrifice scheme, employees can drive a brand new EV without having to worry about paying a big deposit.
Some providers will also fit a free electric charger, so this is another cost they won’t have to worry about.
Brand New Car At Affordable Price
Buying or leasing a new EV is expensive. Yet through a salary sacrifice scheme it can be significantly less. This is because the cost of an EV is deducted straight from an employee’s gross salary, so they benefit from big tax and NI savings.
Employees can expect to save between 20-40% going through a scheme compared to if they were to lease a car personally.
All In One Package
Getting a car through salary sacrifice is very convenient for employees. As well as a brand new vehicle, the monthly leasing cost typically covers everything they need to drive, such as:
- Servicing
- Maintenance
- Insurance
- Breakdown protection.
Some providers may offer tyre and windscreen replacement in the price too. In some cases, the insurance can be removed if your employee wishes to remain with their own insurer.
Cheaper Running Costs
Fuel costs are at an all time high, and as a result, we’re having to pay more to get around. With an EV, the cost of charging a battery is significantly less than filling a tank with petrol or diesel.
Alongside this, they are exempt from road tax. All maintenance and servicing costs are also included in the monthly fee. This means employees won’t have to worry about unexpected fuel or servicing costs.
What Savings Do Salary Sacrifice Electric Car Schemes Provide?
A salary sacrifice electric car scheme is a great benefit that offers savings to employers and employees.
Employer
National Insurance
You will not pay National Insurance contributions on the amount that your employee sacrifices for an electric car. For example, if an employee’s gross salary is £3,000 a month and they sacrifice £500 for an electric car, you will only pay NI on the remaining £2,500. The amount of NI you pay as an employer will vary from employee to employee based on the NI category they sit in.
Companies will have to pay NI on the BiK tax the employee pays. The good news is that BiK tax is only 2% for electric cars (from 2022 to 2025). For fuel or diesel cars, employees could expect to pay anywhere between 5-37%, which would increase how much NI employers would need to pay.
Fuel Reimbursement
There’s also savings if you reimburse employees for their business travel. The advisory fuel rate for a petrol or diesel car is 45p per mile for under 10,000 business miles (this decreases to 25p above 10,000 miles). For an electric vehicle, this rate is just 5p.
To put this into context, we’ve put an example below. It compares fuel reimbursement costs for an employee travelling 160 miles for a work trip in an electric car compared to a petrol / diesel one. This is based upon one single business trip that an employee may have to make occasionally to another office location.
Example Fuel Reimbursement Costs | Car Type | 🔋 Electric | ⛽ Petrol |
|---|---|---|
Business Miles Travelled | 160 | 160 |
Advisory Fuel Reimbursement | 5p | 45p* | Total Employee Reimbursement | £8 | £72 |
*The cost per mile rate changes to 25p if business mileage exceeds 10,000 miles.
As you can see, reimbursing employees for business miles travelled in an electric car is significantly cheaper. In fact, it’s 800% cheaper to reimburse an electric business mile than a petrol or diesel one.
Employee
For employees the savings they can benefit from include:
Reduced Income Tax And NI
As the cost of a lease is sacrificed from an employee’s gross income, they won’t pay tax or NI on it. Their tax and NI contributions will be based on their remaining salary after the lease cost has been deducted.
This is because their contribution will be based on their remaining salary after the lease cost has been deducted.
By leasing a car in this way, employees could save between 20-40% on a brand new electric vehicle compared to leasing it personally.
To help show the savings available, we’ve provided an example of leasing an EV through salary sacrifice and on a personal lease. The example is based on:
- An employee earning £30,000
- Leasing an Mazda MX-30 Hatchback
- 36 month lease
- Annual mileage of 10,000
- With full insurance, servicing and maintenance included in the salary sacrifice option.
EV Salary Sacrifice Vs EV Personal Lease | Lease Type | 🏢 Salary Sacrifice | 🧍 Personal |
|---|---|---|
Lease Cost | £555 | £555 |
Income Tax Saving | -£111 | £0 |
National Insurance Savings | -£44.40 | £0 |
Benefit In Kind Tax (BiK) | +£10 | £0 | Total Monthly Cost | £399.50 | £555 | £150.50 saved through salary sacrifice 🤩 |
Example is based on tax year 2024-2025. Quotes accurate as of April 2024.
The monthly cost of a typical personal car lease includes the car itself and road tax, meaning employees have to pay for insurance, repairs and maintenance themselves. In the above example, the personal lease comes with an extra £2,390 rental fee and £270 processing fee on top of the monthly cost.
With a salary sacrifice scheme, EV providers include a range of services, including insurance, maintenance, and breakdown protection in the cost.
Reduced Fuel Costs
On top of tax and NI savings, employees also stand to gain from a big reduction in fuel costs by switching to an EV. Charging an EV at home costs significantly less than filling up a tank with petrol or diesel—especially if you get a low-rate energy tariff.
We’ve provided an example below to highlight the difference in cost of charging an EV compared to a similar petrol alternative. We have based the example on:
- A VW ID.3 Life Pro and a VW Polo
- UK average petrol prices, £1.77 per litre
- Home using 7 kW charging power at a cost of 21.2p per kWh.
Fuel Costs Vs. EV Charging | 🚗 Car Model | Volkswagen | Volkswagen |
|---|---|---|
Consumption | ⚡ | ⛽ |
Range | 215 | 215 |
Cost Per Mile | 4.4p | 16p |
Fuel / Charging Costs | £9.55 | £33.74 | Charging an EV compared to a similar petrol equivalent is |
Can employees on an hourly wage use a scheme?
What if an employee gets a speeding ticket or fine?
This depends on the scheme provider and its terms and conditions. These charges can be paid by the provider upfront, with the bill passed onto the employee. Some may charge the employer and the employer will deduct the fees from the employee’s salary, or the employee pays upfront.
What if an employee falls ill and is unable to pay the monthly cost?
If personal circumstances change, the employer may cover payments if pay falls to statutory minimum amounts.
What if an employee resigns?
If an employee resigns they must return the car. Their new employer may take over the lease and continue the salary sacrifice scheme for them.
Some electric car providers offer a level of protection for employers in this case. There’s often a clause stating that a car can be returned or X% of cars annually without a fee. Otherwise, fees are 50% of the remaining value of the lease.
How To Set Up A Salary Sacrifice Electric Car Scheme
Electric vehicle schemes are easy for you to set up. Your company will work with a car provider, lease an EV and make salary sacrifice arrangements for their employee. There are lots of providers on the market and an employee benefit advisory firm can help you with your selection so that you get the best solution for your workforce.
To help you set your electric car scheme up, we’ve got some useful information for each of the steps involved below.
1. Research
The first step might seem obvious, but it’s an important one. Research the different scheme providers available and see which one is best for your company and employees.
As a business, it’s worth considering:
- Why do you want to offer an electric car salary sacrifice scheme?
- What do your employees want from the scheme?
Other things to factor in include:
- Pricing – is the scheme valuable to staff?
- Choice of electric vehicles available and timescales of their availability
- The support provided by the scheme provider for employers and employees
- Features included in the cost – does the car come with a free home charger and other added benefits?
- Accessibility of charging points.
2. Contact Scheme Providers
Now you have a more solid idea of what your company wants from an electric car scheme, it’s time to reach out to providers. Contact those that suit your business needs best. This will allow you to get all the information you need to get the scheme up and running.
You’ll want more detail about the points included in your research. For example, how do employees access chargers for their car? What is included in the monthly lease cost? How are they rated by their customers? Do they have any existing customers you could speak to?
3. Make A Plan
To effectively roll out the electric vehicle scheme to your employees, a plan is needed first. Think about the following:
- Which teams need to be informed? HR, Payroll?
- How you will communicate the scheme with your staff
- The process for employees to sign up and order a car
- How the scheme will be managed (and your company’s involvement)
- Record keeping for the cars leased to better manage risk
- Ways to measure the success of the scheme.
You’ll also want to establish who the scheme is for—all employees? Consider setting a criteria for those that want to sign up. If your company has high turnover, this is likely to result in cars being returned early. This may cost you, so it’s important to figure out how to prevent charges.
4. Integrate Into Your Company
In terms of getting employees set up in the scheme, as an employer you would need to sign a lease agreement with an EV salary sacrifice provider. This lease can then be passed onto any employees wishing to take part.
This is typically what the process looks like:
- Undergo company credit checks
- Sign all documentation and wait for approval
- EV provider sets up the scheme.
Once you’re set up, employees only need to follow a few simple steps before they can get their hands on a brand new electric car. This includes:
- Selecting a car model
- Signing a salary sacrifice agreement and vehicle form
- Giving a provider an estimated annual mileage
- Waiting for delivery of the car.
Delivery times can vary between two and 20 weeks, depending on the vehicle type. In-demand models may take longer.
At the end of the contract, the car has to be returned. The leasing company will either sell it into the second-hand market or let the employee buy it.
5. Roll The Scheme Out To Your Employees
You’ve chosen a provider, signed all the documentation and created a plan, so it’s time to launch the scheme.
Make sure all employees are aware of the new benefit and give them any relevant marketing material to help them better understand. You can communicate the scheme to your team through a webinar, email, the company’s intranet or in 1-2-1 sessions. If the provider has a team of advisors dedicated to the scheme, don’t forget to connect your employees with them too.
Once everyone is up to speed, you need to maintain ongoing communication with staff. This will help you ensure it’s running smoothly and employees don’t forget they have access to a great benefit.
6. Measure Its Success
It’s important to keep track of how your new benefit is performing. Assessing this will allow you to see if your staff and your company as a whole, are getting the most value from the scheme.
The main part of measuring the success of your electric car scheme is identifying whether or not your employees are using it. If they aren’t, it doesn’t make much sense for your business to be offering it as an employee benefit.
Ask for feedback and conduct surveys to find out what issues people have faced and why they might not be using it. This will give you the chance to make changes or look at providing another benefit that is more suited to your employee needs.
How Much Does A UK Electric Car Salary Sacrifice Scheme Cost To Set Up?
When it comes to the cost of setting up a salary sacrifice scheme, you’ll be pleased to know that it doesn’t cost anything for an employer. However, there are ongoing costs to be aware of.
Ongoing Costs For Employers
Early Termination Fees
As an employer, you need to be aware of termination fees. Some EV providers will charge you if a car needs to be returned before the end of the lease agreement.
If an employee is no longer in a position to pay the monthly payments, it’s your responsibility as the employer to pay any early termination charges.
Some providers will offer a certain number of early terminations without charge. It’s always important to check this before signing up to a scheme.
Joseph Toft
Senior Consultant, Employee Benefits
End Of Contract Damages
You may also be liable for end of contract damages. This depends on the extent of the damage. Some scheme providers will waiver the costs up to £500, excluding VAT. Make sure to ask about this when signing up.
If damages exceed the provider’s waiver, the charges are payable by you, the employer. This can then be deducted from your employee’s salary.
Ongoing Costs For Employees
Monthly Lease Costs
The main ongoing cost for employees signed up to the salary sacrifice scheme is the fixed monthly payments. This cost doesn’t change during the lease period, unless NI rates change.
Early Termination Charges
Early termination fees must be considered by the employee too. If they send the car back early, this can result in termination charges.
Charging
The cost of charging an electric car is cheaper than a petrol or diesel vehicle, but it’s still an ongoing cost. The price of which will depend on where it’s charged.
Cars can be plugged in at public charge points;the price of this is influenced by the charge point network. For example, some have pay-as-you-go tariffs and others run on a membership basis that costs upfront. Motorway service stations also have rapid charge points, but these are more expensive as they give a faster charge.
Fines
Should an employee receive a fine or parking ticket during the lease period, they will have to cover the costs. Depending on the scheme provider, this can either be billed directly to the employee or to the employer who then deducts the charge from their next pay check. Sometimes the provider will pay upfront and pass the bill on.
It’s important for staff to drive safely and responsibly to avoid any extra costs.
How Are UK Salary Sacrifice Electric Car Schemes Taxed?
Salary sacrifice electric car schemes are completely HMRC compliant. In fact, as there is a big push for people to be greener, HMRC actually view electric car schemes favourably. As a result, you and your employees can benefit from significant tax savings.
As the cost of the car lease is deducted from an employee’s gross salary they won’t pay Income Tax or National Insurance (NI) on this amount. Employers then also don’t have to pay NI on the salary that an employee sacrifices. All or part of the amount saved by the employer on NI can be returned to the employee to lower their salary sacrifice.
VAT
In terms of VAT (a consumer tax added onto purchases of goods and services), 5% is added if an electric car is charged at home. But business electricity is charged at 20%, so if employees charge their vehicle at work it costs a company more. 10% of this can be claimed back through the scheme, though.
If employees use their electric car for business purposes, the amount you need to reimburse is less. This is due to lower advisory rates for electric cars (5p per mile for fully electric cars).
BiK
While there are plenty of tax savings to be gained, employees do need to pay a Benefit in Kind (BiK) tax. This applies when staff get a benefit through their job that they use outside of work hours, e.g. an electric car for personal use.
Every car has a BiK percentage banding, whether it’s electric or not. The cost of this depends on the CO2 emissions the vehicle produces. For EVs, this is currently 2% of the vehicle price.
That said, employers may be exempt from BiK tax if supplying charging points. These must be located at the workplace or close by, and be accessible by all employees.
Government Incentives
As an extra incentive for companies to set up an electric car salary sacrifice scheme, the government is also offering funding for workplace chargers.
Through its Workplace Charging Scheme, eligible businesses can cover up to 75% of the cost of the purchase and installation of EV chargers. This offers another benefit to staff as they can charge their new EV while working.
Can an employee buy the car after the lease ends?
It depends on the scheme provider, but some offer this option.
Is there Vehicle Excise Duty (VED) on EVs?
Vehicle Excise Duty (also known as Road Tax) is included in the salary sacrifice scheme at the same rate at the time of delivery. Pure battery electric vehicles (BEVs) are exempt from VED, and plug-in hybrid models have reduced VED.
How many cars are allowed on the scheme?
Several cars are allowed as long as the total salary deduction doesn’t take an employee’s take home pay below minimum wage. It’s also subject to employer authorisation.
What happens to the charging point if the employee moves home?
The EV charger will need to be reinstalled in the new property or replaced with a new one.
Best Salary Sacrifice Electric Car Scheme Providers UK
There are many salary sacrifice electric car scheme providers to choose from. Here are some of the UK’s best:
Octopus
Octopus provides the complete package in their electric vehicle scheme. They offer leases for 24, 36 or 48 months with mileage options between 5,000 and 30,000 per year.
The scheme includes:
- Insurance
- Servicing and repairs
- Breakdown protection and roadside assistance
- Accident management
- Cancellation cover.
Octopus also fits a free home charger and allows you to charge for free for the first 5,000 miles with their Octopus Go tariff.
loveelectric
loveelectric offers an impressive range of electric car models, such as Smart, Fiat and Mazda, for between £171 and £1251 per month. Employees can save up to 50% on the price of a new electric car over a lease period of either 24, 36 or 48 months. They can also pick a mileage allowance of 5,000, 10,000 or 15,000 miles a year.
The scheme includes:
- Insurance
- Servicing
- Breakdown protection.
Tusker
Tusker is one of the biggest salary sacrifice electric car scheme providers in the UK. Employees choose the fuel type, make, model, colour, interior, and any other optional extras.
The scheme includes:
- Insurance
- Servicing
- Maintenance (including tyres)
- RAC breakdown cover
- MOT and repairs.
LeasePlan
LeasePlan offers a comprehensive plan in its electric car salary sacrifice scheme, that includes:
- Insurance
- Servicing
- Maintenance (including glass repair and tyre replacement)
- Breakdown cover
- Accident management.
Employees can choose a car from an approved list every two to three years. At the end of the contract period, drivers can return the car, exchange for a new one, or buy it.
Novuna Vehicle Solutions
Novuna offers comprehensive insurance that can cover up to three extra drivers. Not only this they also cover maintenance, breakdown protection, and a free home fitted charger in its salary sacrifice scheme.
They have a range of car models to choose from, and take on the admin and risk involved.
WeVee
WeVee’s electric vehicle scheme costs between £215 and £975 a month, depending on the lease terms, type of vehicle and scheme specifications. They provide employers with a bespoke presentation to share with all employees when enquiring.
They also have a dedicated account manager to make sure the process runs smoothly.
The Electric Car Scheme
The Electric Car Scheme works with various car lease companies to give you the best deal. The scheme includes:
- Insurance
- Servicing and maintenance
- A home charger and installation
- Early termination protection
- MOT and breakdown cover (as an optional package).
The provider also sets up the payroll and taxing, and assigns employers an account manager for ease of use.
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