As the demand for electric vehicles and awareness of their benefits grows, more and more people are thinking of going electric. According to the ONS, More than half of UK motorists aged 16-49 say they are likely to switch to an electric vehicle in the next decade. Furthermore, over 4 in 10 likely to switch to electric are expected to do so in the next five years. This is great news for sustainability and the drive to net zero, and the EV Salary Sacrifice Scheme aims to make this as affordable as possible.
What’s The Deal With EV’s?
By 2030, all new petrol and diesel cars will be banned. By 2035, all new cars and vans will have to have zero emissions at the tail pipe. There’s also the ULEZ (Ultra Low Emissions Zone). This makes it extremely expensive to drive polluting vehicles within the London congestion charge zone. Research has shown that CO2 emissions from traffic in London were cut by 5% in 2021. Particulate matter (PM) emissions also fell by 40% and NOx emissions were reduced by almost 54%.
Unfortunately, however, the price of EVs is still just too high for many people to warrant the change up. The average cost to buy an electric vehicle in the UK is around £44,000. The second-hand EV market is still yet to be firmly established due to EVs not being that old yet.
One of the ways to make Electric Vehicles more accessible is through the EV Salary Sacrifice (EVSS) scheme. We break down the huge benefits of the EV Salary Sacrifice Scheme and how it’s changing the social dynamics of the EV market…
What Is The Electric Vehicle Salary Sacrifice Scheme?
An electric vehicle salary sacrifice scheme allows an employee to pay for an electric car each month using their gross salary received from their workplace. A figure is subtracted from their monthly pay check, before tax and other contributions are deducted. It works exactly the same as other salary sacrifice schemes, such as childcare, cycle to work schemes or pension contributions.
However, unlike other salary sacrifice benefits, an electric vehicle isn’t taxed based on the salary that you provide. Rather, the employee pays tax on the value of the benefit in kind (BIK). In basic terms, an electric vehicle salary sacrifice car is a company car which your employer rents from a supplier. The employee pays for the car through their gross pay, with their income tax based on their remaining salary and the BIK value. The process is free from any deposits or credit checks required.
Just like a standard leased vehicle from a supplier, the monthly payments from an employee’s gross salary includes:
- Road tax
- Insurance
- Servicing and maintenance (including glass and tyres)
- Breakdown cover
- Accident management
Usually, the lease contract for an electric vehicle under the salary sacrifice scheme is two or three years. Once the contract comes to an end, the employee can exchange the EV for a brand new one, buy it outright, or return it back.
If an employee leaves during the lease term contract, the vehicle and contract can be passed onto another employee in the organisation seamlessly. Likewise, it’s also possible for the departing employee to move over their EVSS contract with a different employer or cancel the contract altogether.
Will I Save Money Through The Electric Vehicle Salary Sacrifice Scheme?
By going through the EVSS, you will be saving a considerable amount each month. Not to mention, the hassle-free process of the payment coming directly off your pay check each month. This means there’s no need to financially plan, process payments etc. Suppliers such as loveelectric provide employers with a proven stream of EVs that saves their employees a huge sum compared to purchasing the vehicle outright from a dealership or manufacturer.
The EVSS scheme has made is so much more accessible for those on lower salaries to enjoy the benefits of an EV. Through a standard purchasing and leasing of an EV, the price still remains very high which often prices out a vast number of people who are passionate about entering the EV market. According to lovelectric, for someone on a £30,000 salary who averages approximately 15,000 miles a year, the options are very reasonable. They could enter a lease term of 36 months with a brand-new Fiat 500 electric, paying just £343 a month. A standard lease contract would account for £496 a month, saving the employee a huge £153 a month.
For those on a £60,000 salary who averages just 5000 miles a year, it’s possible to lease a brand-new Tesla Model 3 Standard under a 36-month contract for just £469 a month. A standard lease contract of £765 a month for the same vehicle means under the EVSS, the employee is saving nearly £300 a month. What’s more, it’s also possible to insure a partner or other family member on the vehicle as well. You can also use the vehicle for both business and personal use.
Are All Employers & Employees Eligible For The Electric Vehicle Salary Sacrifice Scheme?
The requirements for an employer to be considered for the EVSS scheme are fairly relaxed. You do need to make sure though that the company:
- Have been trading for at least 2 years
- Has a track record of consistent profitability or a strong balance sheet (over 500k net worth)
- Not be in the hospitality or “bricks & mortar” retail industries
- Have more than 20 employees
The requirements for employees to be eligible to lease an EV are also not strict at all. The requirements for employees are that they must be:
- A permanent employee of the company (passed probation)
- Aged 18-65 and not planning to retire during the scheme
- Earning more than minimum wage after the gross salary deduction
- Pass suitability checks – i.e. no more than two category A convictions AND more than one fault per claim disclosed in the last three years or been banned from driving in the last five years etc.
Suppliers who lease to employers through the EVSS scheme provide businesses with a detailed monthly payroll report containing all relevant information on the scheme. This ensures complete full compliance with HMRC. As well as this, all that HMRC requires from the employer is:
- For any employees participating in EVSS scheme, to sign an employment contract addendum which gives permission to reduce their gross salary.
- Notify HMRC when you provide an employee with a car.
- Update payroll to make sure all salary deductions and BIK calculations are correctly applied.
We’re here to help!
We hope this has outlined to you the overwhelming benefits of the EV Salary Sacrifice Scheme and whether your employer or employees are eligible. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.
