Electric vehicles (EVs) could provide a cost-effective and attractive way to your reduce your carbon footprint, improve your ESG credentials, facilitate recruitment and retention of talent as well as saving your business money. EVs are no longer prototypes that deliver more range anxiety than performance. EVs are now realistic and attractive alternatives to traditional cars.
Providing a well-designed EV salary sacrifice plan will reduce your business’s carbon footprint, demonstrating your commitment to the ESG agenda. This will appeal to employees and prospective employees who are increasingly considering the social and environmental impact of their work and their employers. Finally, an efficient salary sacrifice scheme will not only allow employees to save more than a third of the cost of a new electric car, it will save your business employment costs.
How does salary sacrifice for EVs work?
Put simply, an employer acquires an electric vehicle, typically under a lease arrangement. The employee gives up salary equivalent to the lease cost, so the employee has offset the cost the employer has incurred.
However, as the salary is given up before PAYE and NIC, the net salary given up is 67% of the actual lease cost for a basic rate taxpayer and 58% and 53% for higher and additional rate taxpayers respectively.
The tax on an EV as a benefit in kind is very low; 1% of list price for 2021/22 and 2% from April 2022 to March 2025. This means savings for the employee can be substantial and these will increase from 2022/23 when the NIC rate increases. In cash terms, the employee may be benefitting from the use of an EV at a 45%+ discount!
The employer will also benefit significantly as employer NIC, and VAT savings can also be substantial. Even if you are not prioritising ESG issues or outcomes, the financial benefits of EVs are too important to be ignored.
Advice and guidance on EV salary sacrifice
Whether you are looking at a single car for an executive, or a wider offering enabling employees to select EVs as their main or even a second car, you need to ensure that the salary sacrifice is effective, the appropriate tax treatment is applied and the correct reporting takes place. There are numerous issues that need to be addressed.
We will help you by;
- using our salary sacrifice calculator to quantify the tax and NIC and financial consequences across the range of EVs available on the market
- designing an EV arrangement which provides the best fit for your business
- finding the right partner to provide the electric vehicle lease
- meeting your associated payroll reporting requirements
- ensuring your salary sacrifice plan is tax compliant
- personalising the arrangement to look at workplace charging and/or home charging points
- deliver comprehensive employee communication material on your salary sacrifice plan
You can download our useful guide to understanding the benefits of salary sacrifice for Electric Vehicles or you can talk to our salary sacrifice experts; Caroline Harwood, Shawn Healy or Mark Seaden.
Government and HMRC’s position on EV salary sacrifice
It is not so long ago that HMRC introduced legislation (Optional Remuneration Arrangements) to remove some of the tax advantages of using salary sacrifice. However, the use of EVs was specifically excluded from those measures. In other words, HMRC indicated that they did not consider these arrangements to be controversial.
Since then the Government has also pledged to investment £620 million into grants for electric vehicles and street charging points. While it is not yet clear exactly how how the £620m funding will be structured and whether employers will be incentivised further to provide employees with electric vehicles (EVs).
The way the company car tax regime was restructured in April 2020 and the recent announcements reflect the Government’s ongoing commitment to incentivising employers to provide EV cars.