Electric car salary sacrifice scheme explained

January 26, 2023 by

Salary sacrifice schemes can offer a great route into affordable EV motoring – but how do they work?

Electric car salary sacrifice schemes can be a tax-efficient way to get yourself an EV.

If you’re interested in an EV and your employer offers a salary sacrifice scheme for them, opting for this means you won’t have to pay tax on the money used to obtain the car. Clearly things are a little more involved than this, which is why we’ll explain the whole concept here.

What is an electric car salary sacrifice?

Salary sacrifice schemes work by taking a portion of your earnings before tax, and using this to fund repayments on an electric car. The principles of salary sacrifice apply to many goods and services, including childcare vouchers, bicycles and pensions. With the Government wanting to encourage EV ownership, electric cars, EVs can now be funded using salary sacrifice.

How do electric car salary sacrifice schemes work?

Salary sacrifice, sometimes shortened to ‘salsac’, will see you sign a contract with your employer for a specified portion of your pre-tax earnings to be used for specific goods or services.

In the case of an electric car salary sacrifice scheme, you will choose a car from a list of vehicles approved by your employer based on how well the vehicle suits your needs and budget, then each month a portion of your salary will be automatically deducted, prior to tax, and this will cover the monthly repayment on the car.

The car will be leased from a third party firm by your employer, who in turn leases it to you under the scheme. Servicing and insurance will typically be included as part of the scheme, leaving you to just pay for electricity. Schemes tend to last from two to four years, and the cars can be for private or business use.

Do note that salary sacrifice schemes electric car schemes are different from company car schemes; the latter provides you with a car with no lease cost, though you will pay company car tax.

Are you looking to find out more about salary sacrifice?

Carwow is proud to work with Corparison as our salary sacrifice partner.

Corparison are backed by a leading panel of funders which means they can offer the most cost-effective salary sacrifice deals for your staff, across every make and model.

The Corparison team are experts in supporting businesses like yours in implementing rewarding schemes like salary sacrifice.

Enquire with Corparison today with just a few basic details about your business to see how they can support you. The team are ready to help you enhance your employee benefits to a whole new level.

What is included in electric car salary sacrifice schemes?

The car, obviously, will be included, as, typically, will be insurance. Road tax, servicing, breakdown cover and even replacement should also be part of the deal.

What do you need to pay for?

While the above is a pretty comprehensive list, you’ll still need to pay for electricity to charge the car. You’ll also need to pay company car tax on the vehicle, although this is mercifully low for electric cars.

Electric car salary sacrifice example

Let’s say your company offers a salary sacrifice scheme for the Tesla Model 3, and the lease deal on this is £550 a month; that is the amount that is taken out of your gross salary.

If you were a 40% rate taxpayer, you would pay £220 tax on that £550, leaving you with £330 in your pocket. In effect, this means a car that is £550 a month to lease is actually costing you £330.

You would make further savings as you won’t be paying National Insurance on that £550, either.

You will have to pay Benefit-in-Kind tax, but this is negligible for EVs. An entry-level Tesla Model 3 costs £45,990, and its 0g/km CO2 emissions gets it a BiK rate of 2%, so the taxman sees £919.80 of its value as taxable. If you’re a 40% rate taxpayer you will pay 40% of that in a year, equivalent to £367.92, or £30.66 a month.

Is electric car salary sacrifice worth it?

The electric car salary sacrifice scheme is a win-win programme both for employers and employees.

For the employee

  • Can save a significant amount of money on a new EV
  • Amount of included services make it a hassle-free way to get a new car
  • If you’re new to EVs it can be a good route as you don’t own the car

For the employer

  • Can make your firm more attractive to potential employees
  • Can also make savings in employee National Insurance Contributions
  • Can reduce your company’s carbon footprint

Who offers the salary sacrifice scheme?

Companies are under no obligation to offer salary sacrifice schemes to their employees, but those that do will often highlight this when advertising positions. Employers won’t facilitate these schemes themselves; rather, they will use a dedicated salary sacrifice company that will provide the car, the leasing terms, plus insurance and servicing programmes.

EV salary sacrifice FAQs

Can anyone get an electric car on the salary sacrifice scheme?

You can only use a salary sacrifice scheme if your employer offers one. You will need to be over 18, and have a fairly clean driving licence as insurance (which tends to be included with schemes) may be tricky to come by if you have several endorsements.

Which electric cars qualify for the salary sacrifice scheme?

In theory, any EV is eligible for a salary sacrifice scheme, but the choice of vehicles available to you will be determined by the cars offered by your employer via their programme.

Can you buy a used electric car on the salary sacrifice scheme?

An electric car salary sacrifice scheme is a method of leasing an EV. By default you will to give the car back at the end of the lease period, but you may also have the option to purchase it for an agreed price based on its market value.