Electric Vehicle Salary Sacrifice
Providing a fully maintained and insured company vehicle through an electric vehicle salary sacrifice arrangement has become increasingly popular. This is because the overall cost of no longer receiving the salary, plus paying tax on the company car Benefit-in-Kind (BIK), was often lower than privately leasing the same brand-new car. However, recent changes to legislation have impacted car salary sacrifice.
The introduction of the OpRA legislation has had a dramatic impact on the popularity of salary sacrifice. The government’s stated objectives for OpRA was to remove the income tax and employer’s NIC advantages of salary sacrifice arrangements for most benefits, including cars. As a result, salary sacrifice arrangements for the most popular vehicles lost much of their financial efficiency. In contrast, the number of vehicles taken via salary sacrifice arrangements began to fall.
However, the government did agree with industry lobbying to exempt Ultra-Low Emission Vehicles (ULEVs) from these rules. Importantly, this exemption maintains the financial attractiveness of salary sacrifice for ULEVs, which are vehicles that emit 75g/km of CO2 or less. ULEVs are typically plug-in hybrid petrol/electric and pure electric cars.
This exemption, coupled with meagre rates of benefit-in-kind for electric cars, provides a clear incentive for organisations to consider introducing a car salary sacrifice scheme focussed on electric vehicles.
Benefits of Electric Vehicle Salary Sacrifice
With the introduction of low company car tax rates for zero-emission electric cars, the result is very low BIK values. Moreover, compared to the income tax and national insurance that would have otherwise been due on the sacrificed salary, these arrangements can offer employees a financial advantage.
In addition, the employers Class 1A National Insurance liability for a company car is calculated based on the BIK value for the vehicle in question. As noted above, the BIK value for a ULEV is lower. Therefore, there may be a minimal National Insurance cost associated with providing an electric company car. In contrast, an employer would pay Class 1 NI regarding the value of the salary sacrificed, which is likely to be much higher than the BIK for the company car. As a result, savings generated from salary sacrifice for an electric vehicle can generate an NI efficiency. These savings can be re-invested into the business or passed onto the employee.
Employee A is a 40% taxpayer and wants to lease a Tesla 3 over three years from her companies’ salary sacrifice scheme.
Over three years, the monthly benefit-in-kind on this vehicle is £0, £14 and £29. In total, they sacrifice £835 each month from gross salary, equating to £498 per month net from their take-home pay. In turn, the employee saves just over £12,000 over three years. Also, their employer retains just short of £4,000 over three years (in National Insurance)
Employee B is a 20% taxpayer and wants to lease a Nissan Leaf over three years.
Over three years, the monthly benefit-in-kind on this vehicle is £0, £5 and £10. In total, they sacrifice £439 each month from gross salary, which equates to a saving of £141 each month or just under £5,000 over three years. In addition, their employer saves just over £2,000 over three years (in National Insurance)
Another financial benefit is the increased buying leverage for employees as they have access to their organisation’s bulk buying power. For example, where an employer provides company cars to employees, it can usually negotiate discounts based on the number of vehicles it will order from a particular provider or vehicle manufacturer.
Generally, the bulk buying power of an employer will result in more significant discounts. Notably, compared to an individual employee on the high street. Therefore, salary sacrifice arrangements can allow employees not typically entitled to a company car to access bulk buying discounts.
Electric vehicle salary sacrifice can offer an improved Compensation & Benefit offering for employees, which can aid recruitment and retention for the HR function.
EVs are environmentally friendly. Therefore, it could appeal to corporate social responsibility agendas and the growing public desire to drive ‘greener’ cars.
An additional non-financial benefit is the further control of risk from a company vehicle. Using a company car may be more convenient, visible and manageable for individuals driving periodic business mileage. Such an arrangement could reduce the number of “grey fleet” drivers. Traditionally where management and tracking of health and safety obligations can prove problematic.
Many consider the most significant non-financial benefit to be the environmental benefits. For employees, it is desirable to access these ‘greener’ cars at a much lower cost than in the retail environment. Together, with fixed corporate insurance and no requirements for personal credit assessments. Furthermore, company cars will be maintained following manufacturer guidelines, managed by the car lessor.
For the employer or organisation, this offering can add a new string to their CSR strategy. Zero-emission cars offered to the all-employee base is a very positive step in improving the low carbon credentials of your company or organisation and reducing the impact on the local environment of your employees travelling into or out of the office or site.
Please get in touch if you want to know more about how electric vehicle salary sacrifice schemes can benefit your business.