The electric car revolution is finally here, with EV sales projected to reach £10.7 million by 2025. In many ways, the UK is leading this revolution as the government has recently announced a plan to have 80% of new cars and 70% of new vans be zero-emission by 2030. The plan is backed by over £2 billion in government investments. This is one of the most significant shifts by any nation towards electric vehicles for a brighter future.
The government is planning to replace 80% of the vehicles running on the UK roads with EVs in just 6 years. For the general public, it means that you quickly need to find ways to finance an electric vehicle. A great solution to this is a salary sacrifice scheme for electric cars such as Loveelectric. Within the following pages, we are going to explain what this scheme is, how it benefits the UK’s workforce, and how it sets the country up for a greener, more sustainable future.
What Exactly is Salary Sacrifice for Electric Car
Salary sacrifice schemes aren’t a new idea. Salary sacrifice scheme (AKA “salsac”) is where an employee agrees to receive less salary in exchange for goods or services. This can ultimately lower your tax threshold as you pay for goods, before receiving your salary. The portion of the salary that the employee sacrifices is then used to fund the repayments. This is a relatively new concept when it comes to getting your hands on an electric car through salsac.
The salary sacrifice scheme for EVs works like this:
- Employee selects an electric car from options approved by the company or employer. They usually offer both new and used electric vehicles to choose from.
- The employer either finances the car itself or signs a contract with a third party for the provision of the vehicle. The car is registered under the employer’s or the leasing company’s name.
- As per the contract, a portion of the employee’s salary is then held by the employer each month for the repayments.
The tenure of the salary sacrifice scheme is around 2 to 4 years. At the end of the lease period, the car is transferred to the employee’s name, who can then decide whether they want to keep it or exchange it for a new car.
Benefits of Salary Sacrifice Scheme for EV’s
Salary sacrifice for electric cars offers a number of benefits for both the employee and the employer, with the highlights being the following:
- Tax Cuts: First and foremost, Salsac for EV allows employees to save around 30% on the overall cost of the car since a part of their salary is being deducted before tax. Lower earnings mean a lower tax bracket.
- Low Benefit-in-Kind Tax: In the UK, the tax the employee pays for having an electric car as a benefit is reduced. It’s only 2% of the car’s list price for the tax till March of 2025. This can lead to substantial savings.
- Employer Savings: The employer also benefits from the scheme. They can save up to 12.8% on National Insurance contributions, which can be a significant amount company-wide. Businesses can also improve on their ESG credentials by lowering their carbon footprint.
- Overall Savings: Let’s say the employee was spending £800 a month on car-related expenses like lease payments, fuel, insurance, and maintenance. With a salary sacrifice scheme, this could drop to £611 a month. That means the employee could save more than £2,200 a year per employee.
These are only a few of the benefits employees and employers get with the help of salary sacrifice for electric car schemes. Remember, the specifics can vary depending on the policies of your employer. So, it is always a good idea to check the details of your agreement before signing a contract.
How is Salary Sacrifice Leading the Electric Car Revolution in the UK
With all the benefits for employees as well as employers, the salary sacrifice scheme is playing a significant role in the uptake of electric vehicles in the UK. A recent survey conducted by the Electric Car Scheme suggests that 83% of the companies are planning to offer a salary sacrifice scheme for EVs in 2024. Interestingly, recent stats published by Arval, a car leasing company, revealed that 88% of the 5,000 cars leased in 2023 through their employer’s salary sacrifice schemes were EVs.
The UK government has announced a plan that by 2035, 100% of the new car sales in the UK must be Zero Carbon Emissions (ZEVs). The salary sacrifice scheme is going to play an absolutely crucial role in achieving this milestone as it enables the UK working class to easily switch to EVs without worrying about their credit scores or dealing with the complexities of leasing through banks. This scheme also allows employees to save massively on taxes and, therefore, offers an easy-to-follow and highly beneficial roadmap to switching to EVs.
Future Prospects of Salary Sacrifice for Electric Cars
It’s clear that salary sacrifice schemes for electric cars are becoming more popular. More employers are giving their employees the option to get an electric vehicle as part of their salary package. In fact, 83% of companies are planning to offer this option by 2024.
The tax on perks like having an electric car (known as the Benefit-in-Kind tax) is currently very low at 2%. This is done to encourage people to choose electric cars over their fossil fuel counterparts. Even though this tax will increase slightly each year from 2025 to 2028, the overall tax benefits of these schemes are still significant.
From 2025, electric car owners will have to pay a road tax. But, electric cars will be charged the lowest rate for the first year and then pay the same rate as other vehicles over the preceding years.
Tax is also set to increase for the country’s highest earners. Those who make more than £125,140 per year will now pay a higher rate of tax. High earners can save even more money with salary sacrifice schemes due to this reason.
So, the future looks bright for salary sacrifice schemes for electric cars. They’re a great way for employees to drive an electric car and save money while helping the environment.
