Electric car salary sacrifice scheme – how does it work?
Our handy guide to a simple and more affordable way into electric vehicle ownership
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If you’ve considered buying an electric vehicle (EV) before but you’re not sure about the upfront costs, perhaps an electric car salary sacrifice scheme is something to consider.
This is a simple way to get into EV ownership at a more affordable rate without paying tax, if your employer provides it.
So, here’s what it is and how it works:
What is an electric car salary sacrifice scheme?
An electric car salary sacrifice scheme is easy to understand and works in the same way as the government’s Cycle to Work scheme.
When signed up, the scheme takes a portion of your salary before tax and uses this to pay for an electric car, making it much more affordable because you don’t pay tax on the money used.
To qualify, you’ll need to be over the age of 18 and have a clean driving licence, but your employer or the leasing company may require more.
Keep in mind that since an electric car salary sacrifice scheme is classed as a benefit-in-kind (BiK), you'll need to pay a 2% tax on it (until April 2025, when it'll rise 1% each year until it reaches 7% in 2028).
How do electric car salary sacrifice schemes work?
If your employer is signed up for the scheme, then it’s as simple as signing up and choosing your EV from a range of approved cars.
The cars available to you will be based on how well they suit your needs and budget.
Once selected and approved by your employer, a portion of your salary (before tax) each month will be automatically deducted and will cover the monthly repayments on the car.
Essentially, this is car leasing that comes from a third party outside of the company you work for.
It should be noted, however, that this isn’t the same as having a company car – this is a completely different setup with your employer.
What’s included, and what do I pay for?
Servicing, road tax, breakdown cover and insurance will typically be included as part of the scheme, meaning you will just pay for the electricity to charge the vehicle and often company car tax, which is low for EVs.
Typically, these car leasing agreements last from two to four years, allowing you to use the car for both private and business purposes.
Electric car salary sacrifice example
It’s all well and good talking about how it works, but here’s an example of how the EV salary sacrifice would affect someone in the real world.
Let’s say you want a swanky used Volkswagen ID.3 that usually costs you £450 a month. Instead of paying that (and assuming you’re a 40% taxpayer), you can knock off £180.
This means instead of paying the full £450 a month, you’ll only be paying £270, which is deducted from your salary automatically.
There is, of course, Benefit-in-Kind tax too, but for electric cars, this is minimal and will work out at small extra payments every month. The cost of this depends on the value of the car you’re leasing.
Are electric car salary sacrifice schemes worth it?
Electric car salary sacrifices are a great thing for an employer to offer because not only do they help the employee save money when buying a car, but they also help those who commute to work where an EV makes more financial and ecological sense.
It’s also useful if you need/want a car but don’t want to own it outright. This is where car leasing models come in handy.