Our guide to all things salary sacrifice 💡
Part of the UK government's plan to achieve net zero by 2050 is to stop the sale of new petrol and diesel cars by 2030 to promote a green economic recovery. To do this, they have introduced new incentives, like electric car schemes, to support drivers to make the switch to electric vehicles easier.
According to Zap Map, there are over 660,000 electric cars in the UK as of December 2022 - that is a 40% increase from 2021. So, our point is that electric cars are becoming more and more popular. If you are thinking about jumping on the bandwagon, we thought we would offer some key numbers surrounding electric cars to help you with your decision.
How does salary sacrifice work?
Note: Assumes 3 year lease starts on 02/02/2023 *Prices are indicative as the best deals on the market change daily. Assumes higher rate taxpayer.
Instead of leasing an electric car in the usual way, which is paid with your post-tax (or net) income, the fixed monthly payments are taken from your salary before any income tax or National Insurance is paid. This will allow you to save 30-60%!
As a car through The Electric Car Scheme is an employee benefit provided to you, it’s therefore a ‘company car’, so there is a company car tax payable. However, the value of this “benefit-in-kind” (BIK) is set by HMRC, and set at very low rates until at least 2028.
To learn more about The Electric Car Scheme visit our company pages or watch our explainer video below 👇
Typical costs that come with salary sacrificing an EV
There are lots of different numbers involved when it comes to getting a car through salary sacrifice. So here is a rundown of the key numbers you will come across when looking at electric cars through salary sacrifice:
Benefit-in-kind (BIK) tax
When you salary sacrifice an electric car you can access major savings as you will pay for the cost of the car through your gross salary (before tax). As this car is classed as a ‘company car’ the employee is subject to a benefit-in-kind tax - this is currently set at 2%.
The Autumn statement announced by Jeremy Hunt in November stated that the BIK rate will stay at 2% until 2025, after which it will increase by 1% every year till 2028.
The BIK tax for cars is calculated based upon three factors: firstly, the level of CO2 emissions produced by a car (of which a pure electric vehicle will have none, as it doesn’t give out any emissions); secondly, the P11D value of the car (the on-the-road price of the car); and thirdly, your personal tax bracket.
P11D value of the car ✕ the BIK rate ✕ your personal income tax bracket = BIK tax owed
Road tax
Another question we have a lot - Electric cars are brand new so how dire is the road tax?
At the moment, there is no road tax for electric cars as this rate varies largely according to emissions and the age of the car with all zero-emission vehicles currently exempt. However, the chancellor announced in the Autumn Statement that road tax will be introduced to electric cars in 2025. In the first year they will be charged the lowest band for new cars, and then will pay the same rate as other vehicles.
Thereafter electric cars will pay £165 per annum - so if you are on a 4 year lease already on the road, they will have a potential cost of £165 in 2025 - but they can pay for this using their gross salary via The Electric Car Scheme. This will offset some of the BIK savings - but overall you are still very likely to save more than expected previously!
Top electric cars you can salary sacrifice
There are SO MANY electric cars to choose from that we decided we would help narrow it down. Our top all rounders are:
Polestar 2
MG4 Hatchback
Kia E-Niro 4
Tesla Model Y
Renault Zoe
To find out why they are some of the best electric cars on the market right now you can read our blog: The best electric cars to salary sacrifice. Or if affordability is the main factor, we also have a blog about the most affordable cars for that 😉
What happens to old electric cars batteries 🪫
Did you know that over a car's lifetime, internal combustion engine (ICE) cars burn around 17,000 litres of petrol and 13,500 of diesel.
To put it into perspective, a study by Transport and Environment explains that if the oil barrels were stacked on top of each other, they would be around 70-90 m high - this is the equivalent of a 25 story building!
However, with electric car batteries, once you take into account the recycling of the materials and that most of the metal content is recovered, only 30 kg would be lost - the size of a football!!
Most electric car batteries have a lifespan of 15 to 20 years - after which they can be deemed too weak to power a car. According to SMMT’s 2022 Automotive Sustainability Report, as of 2015 car manufacturers are now responsible for disposing of 95% of the vehicle (by weight) in a sustainable manner.
Although there is still lots of research being done on this topic, some car manufacturers have found interesting ways to repurpose car batteries. From Nissan using them for backup power to Amsterdam Arena and Toyota to store energy from solar panels to support drink fridges - you can read it all more in our blog.
Learn more about salary sacrifice and how The Electric Car Scheme could help employees save 30-60% on an electric car book a group session to talk with one of our specialists.
