Top Benefits Of A UK Salary Sacrifice Electric Car Scheme?

To attract and retain top talent, as an employer you need to offer benefits that help you to stand out from the crowd. One benefit which can help you to do this is an electric car salary sacrifice scheme.

But what makes this such an attractive benefit? Our below guide aims to answer just this.

What Is A Salary Sacrifice Electric Car Scheme?

A salary sacrifice electric car scheme is an agreement between an employer and an employee. The worker sacrifices part of their gross salary every month in return for a brand new electric vehicle.

This is a cheaper way for an employee to get a new car. It can be up to 40% more affordable than a standard personal lease due to the Tax and National Insurance (NI) savings available.

How Do Salary Sacrifice Electric Car Schemes Work?

As a company you would register with a car provider and then lease cars from them. You then rent the cars to employees for a monthly fee which is sacrificed from their gross salary.

Due to this they don’t see this money in their bank account. It goes straight to the employer to cover the lease, which means they benefit from Tax and NI savings.

Setting Up A Scheme

Before you can set up a scheme you would need to undergo a credit check and your employees eligibility would also be reviewed. This doesn’t take long though, in some cases schemes it can be set up in as little as 10 days. After that, the electric vehicles can be ordered.

The lease provider does most of the work. From admin and payroll, to making sure the scheme is HMRC compliant, you can sit back and relax.

What Are The Benefits Of A Salary Sacrifice Electric Car Scheme For Employers?

All employee benefits are, as the name suggests, about giving something extra to employees.

Offering employee benefits also brings many advantages to the company. Salary sacrifice electric car schemes are no different.

No Set Up Costs

The first benefit of a salary sacrifice scheme is that it costs nothing to set up or run. As an employer you can offer a great benefit without having to pay anything to implement it.

Not all companies have a big employee benefits budget which makes an EV scheme a great option for all businesses.

Reduces National Insurance Contributions And VAT

A significant benefit for employers is the reduction in National Insurance Contributions (NIC). As the employee doesn’t pay NIC on the amount they sacrifice, your company will pay less as a result.

To make the benefit even more appealing to your employees you can choose to pass back the NI savings you make, so they get an even greater saving.

Businesses also save on VAT (a consumer tax) for the lease payments. You can claim back 50% of this, which soon adds up for a large fleet.

Reduces Business Fuel Costs

Business mileage is one of the biggest costs with traditional company cars. The good thing is electricity costs less than fossil fuels, so charging an electric vehicle is cheaper than filling a petrol or diesel tank.

This means reimbursing your employees for their mileage will have a smaller impact on business finances.

HMRC’s advisory rate for reimbursing electric company car mileage is set at just 5p per mile. This is much less than the advised 45p for petrol/diesel cars. In fact its 800% cheaper. After 10,000 miles the advisory rate for petrol/diesel cars does drop to 25p, however electric is still much cheaper.

Example Fuel Reimbursement Cost

To put the above into context we’ve provided an example for the cost of fuel reimbursement for an electric car compared to a petrol/diesel one below. The example is based on:

• An employee travelling 160 miles for a one off business trip
• Getting 45p per mile.

Increases Employee Engagement And Productivity

A benefit such as an EV scheme shows appreciation and offers value to employees. This puts your business in a good place.

Job satisfaction will improve and the team is likely to be happier and feel valued at work as a result. Don’t forget that happy employees are more engaged and productive. A company then benefits from faster project delivery and high quality work.

Improves Employee Retention And Attract Talent

Employee benefits are a great employee retention tool. If you can offer benefits of value, which your competitors don’t employees will be less likely to look elsewhere.

For example, only a few businesses offer a salary sacrifice electric car scheme to their team. For employees who might not be able to afford a new car upfront, it’s an enticing benefit. It’s also a great reason to stay at a company or join it.

The scheme will also benefit the company when it’s time to hire. An employee benefits package stands out on a job description, showing candidates that the employer cares. It may just help you access a bigger talent pool.

Replacing employees that leave comes at a cost for employers. The average staff member costs around £12,000 for small businesses to replace.

A large sum to consider, especially for a small business, so it pays to focus on company retention.

Richard Noble
Senior Employee Benefits Consultant

Improves Company Carbon Footprint

Electric cars are better for the environment than Internal Combustion Engine (ICE) vehicles (petrol or diesel cars). This is because they run on a rechargeable battery rather than non-renewable fuel sources.

As an electric vehicle is powered by electricity, it emits zero carbon emissions which helps to make the roads cleaner and greener.

The electric car scheme is a good idea if a business has pledged to reduce its environmental impact. It will improve a company’s carbon footprint by removing fossil fuels and boost reputation.

Benefits Of A Salary Sacrifice Electric Car Scheme For Employees?

Salary sacrifice schemes aim to offer employees more than their monthly wage. While income is important, potential candidates look for the extra perks on a job description when applying for roles.

Companies can’t always give high salaries, so non-cash benefits like an electric car scheme are great for offering more value to employees.

New Electric Car At Affordable Price

Buying or leasing a new electric car in the traditional way doesn’t make sense financially. As mentioned before, these models are expensive. For those on lower incomes, it’s unlikely they’ll be able to afford a new EV.

No Upfront Costs

With an electric car scheme employees don’t need to provide a deposit in advance. This means they can drive a new vehicle without any upfront costs, making it an affordable option.

Some providers may also offer a free home charger as well. As this accessory can cost up to £1,000 to buy and install, the start up savings are immense.

Tax And National Insurance Savings

The tax savings of a salary sacrifice scheme is one of the best benefits. Employee’s pay from their gross salary which results in them paying less Income Tax and National Insurance.

As a result of this, compared to personal leasing, the average savings are around 20-40% in a salary sacrifice scheme. To help put this into context we’ve put an example below based on the following:

• An employee earning £30,000
• Leasing a Mazda MX-30 Hatchback through Octopus Electric Vehicles
• A lease period of 36 months
• Annual mileage of 10,000
• With full insurance, servicing and maintenance included in the salary sacrifice option.

Low Fuel Costs

Fuel prices are increasing, leading to drivers considering electric alternatives to save money.

A salary sacrifice electric car scheme doesn’t just save the business money on fuel, but the employee too. Electricity costs very little compared to petrol and fuel, so even if it’s charged at home the price is still low.

Some energy providers will also offer super cheap tariffs overnight which could make the cost even cheaper. Octopus electric for example offer an overnight tariff which gives energy for 7.5p per kWh.

Example Fuel And Charging Costs

We’ve provided an example below to highlight the difference in cost of charging an EV compared to a similar petrol alternative. We have based the example on:

• A VW ID.3 Life Pro and a VW Polo
• UK average petrol price £1.77 per litre
• Charging costs based on a home using 7 kW charging power at a cost of 21.2p per kWh.

As the cost per mile for an electric car is so much cheaper, your journeys will be cheaper. You can calculate your own journey cost savings with this calculator.

Eco-Friendly Option

Road vehicles contribute to around 25% of the UK’s greenhouse gas emissions. As a result, the government plans to ban new sales of petrol and diesel cars by 2030 to help reduce emissions. Signing up to a salary sacrifice scheme lets employees be one step ahead.

Electric car schemes are popular because they’re environmentally friendly. Pure electric models have no tailpipe, meaning they produce zero carbon emissions. So, switching to an electric vehicle helps keep the streets and air cleaner.

What’s more, renewable energy from wind farms, solar panels, and hydro plants is often used to power EV’s. All in all, this employee benefit has a lower impact on the environment.

Convenient All In One Package

With many hurdles to jump over before owning a car, it’s not easy for everyone to have one. There’s also a lot to keep on top of, like insurance cover, maintenance and repairs.

Fortunately, an electric car salary sacrifice scheme is more convenient. The monthly lease payment typically includes everything an employee needs to drive:

• Servicing
• Maintenance
• Insurance
• Breakdown protection.

The provider takes care of pretty much everything. They also deliver the vehicle right to the employees door.

As mentioned above some may even include free home chargers too. All the employee needs to do is drive safe and keep it charged.

Fixed Monthly Costs

The price of a salary sacrifice scheme can vary. It depends on the car model, contract term, mileage, and what’s included in the package.

The cost is set at a fixed monthly price though, so it won’t change during the contract. This is more manageable than a personal lease. Employees can forget about any unexpected bills, it’s all covered in the cost.

The price is predictable, whether the contract is 24, 36 or 48 months, so the same amount is always paid. However, there may be adjustments to the cost if an employee receives commission, a bonus or gets a pay rise. This is down to the employer.

Compare Employee Benefits Quotes and Get Expert Advice

As you can see the benefits of salary sacrifice electric car schemes are vast. However, it’s important that your company’s employee benefits suit everyone and provide value.

You need to choose what works best for your business and what staff appreciate the most.

If you need help with a salary sacrifice electric car scheme or any other employee benefits, get in touch with our financial experts today.

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