The UK's electric vehicle (EV) market is experiencing unprecedented growth.
Last year over 1.25 million fully electric cars were on British roads, comprising 3.75% of all cars. This year alone, EVs have captured 17.8% of new car sales, signalling a dramatic shift in consumer preferences.
As EV adoption accelerates, both employers and employees are seeking innovative ways to capitalise on this trend.
Enter the electric car salary sacrifice scheme – a financial arrangement gaining traction in the UK's corporate world.
In the following article we explore the ins and outs of electric car salary sacrifice schemes, and their alternatives for those looking to be more cost effective.
Table of Contents
Understanding Salary Sacrifice for Electric Cars
An electric car salary sacrifice scheme is an employee benefit programme that allows workers to lease a new electric vehicle using their pre tax salary.
This arrangement offers significant tax savings and typically includes comprehensive coverage. Key aspects include:
- Tax Efficiency: Payments are deducted from gross salary, reducing taxable income.
- All Inclusive Package: Usually covers insurance, maintenance, road tax, and breakdown services.
- Fixed-term Contracts: Typically 2-4 years.
- Low Benefit in Kind (BIK) tax: Currently very favourable for electric vehicles.
- Potential Savings: Employees can save 30-60% compared to private leasing or purchasing.
Is There a Difference Between Electric Car Salary Sacrifice and Salary Sacrifice?
Salary sacrifice schemes allow employees to exchange part of their pre-tax salary for non-cash benefits.
While general salary sacrifice can cover various perks like increased pension contributions or childcare vouchers, electric car salary sacrifice specifically focuses on providing employees with electric vehicles.
In a general salary sacrifice arrangement, employees might opt for benefits such as additional pension contributions, childcare vouchers, or cycle-to-work schemes.
Both types offer potential tax and National Insurance savings for employers and employees.
Electric car salary sacrifice stands out by addressing the growing demand for sustainable transportation. It provides financial benefits and aligns with corporate sustainability goals and the UK's shift towards electric mobility.
This specific focus on electric vehicles distinguishes it from broader salary sacrifice schemes, making it particularly relevant in today's environmentally conscious corporate landscape.
How Does NHS Workers Car Salary Sacrifice Differ From Traditional Schemes?
The NHS electric car salary sacrifice scheme differs from traditional schemes in several key ways. It offers exclusive discounts for NHS workers, potentially providing greater savings than generic schemes.
The NHS scheme bundles insurance, maintenance, servicing, and breakdown cover into a single monthly payment, simplifying budgeting.
Though the NHS salary sacrifice is not specific to electric cars, it is more advantageous to electric cars due to their lower benefit in kind rates.
While the scheme reduces pensionable salary, impacting NHS pension contributions, it allows work and personal use of the vehicle within agreed mileage limits.
Designed for stable NHS employment, it works best for long-term staff. The scheme provides a wide selection of car brands with varying discounts. At lease-end, options include returning the car, renewing the lease, or leasing a new vehicle.
Unlike traditional schemes, the NHS version is tailored specifically to healthcare professionals' needs and circumstances, aligning with the sector's stability and sustainability goals.
How do Salary Sacrifice Schemes Work for Electric Cars?
Salary sacrifice for electric cars is an employer-provided scheme where employees exchange part of their pre-tax salary for an electric vehicle lease. Key aspects include:
- Employer Participation: The scheme must be offered by the employer, often through specialised leasing firms.
- Pre-Tax Deduction: Lease payments are deducted from the employee's salary before income tax and National Insurance, resulting in tax savings.
- Fixed Term Lease: Typically involves leasing a new electric car for a fixed period, such as one year.
- Potential Savings: Employees do save up to 20-400% compared to personal leasing, depending on their tax bracket.
- Comprehensive Packages: Often includes maintenance, repairs, car tax, breakdown cover, insurance, and even home chargers.
What are the Benefits of Electric Car Salary Sacrifice Over Other Electric Car Schemes?
The electric car salary sacrifice comes with the following benefits
- Tax Savings: Payments are deducted from pre-tax salary, reducing income tax and National Insurance contributions.
- Lower Overall Cost: Potential savings form 20 to 30% compared to personal leasing, depending on tax bracket. By using car discounted schemes likes NHS car discount our key worker car discount, you could save more.
- All Inclusive Packages: Often includes maintenance, repairs, car tax, breakdown cover, insurance, and home chargers.
- Simplified Budgeting: Fixed monthly payments cover most car-related expenses, easing financial planning.
- No Depreciation Risk: Unlike buying outright, employees don't bear the cost of the vehicle's value depreciation.
- Flexible Terms: Often offers options to return, renew, or choose a new vehicle at the end of the lease term.
Cost Comparison With Examples
To have a more clear understanding of how much ideally can you save using various financial option there, and to understand if electric sacrifice is beneficial in the longer term, see the following illustration of a £30,000 electric car.
Example: Financing a £30,000 electric car over 3 years
Key Benefits of Salary Sacrifice
- Lowest total cost
- All-inclusive package (maintenance, insurance, tax)
- Tax savings through salary reduction
- No large final payment
- Option to easily switch to a new car after the term
Note: Actual costs may vary based on individual circumstances, tax rates, and specific deals available.
Alternative Schemes to Salary Sacrifice
NHS and key workers car discount scheme
If you are a part of NHS and other UK key workers which include NHS, military, police, teachers, civil servants, social workers, carers and more then you are eligible for exclusive discounts on your car purchases which can be more beneficial than salary sacrifice on specific instances.
Through Motorfinity, you can save on average £7,000 on all makes and models.
To understand how this fits in the picture, see the following comparison below.
Example: Comparing Key Worker Options for a £30,000 Car
Key Takeaways
- Key worker discount offers significant upfront savings
- Salary sacrifice provides lowest monthly payments and includes running costs
- PCP with discount offers lower total cost but excludes running costs
- Outright purchase gives immediate ownership but highest initial cost
Note: Actual costs may vary based on individual circumstances, tax rates, and specific deals available. Key worker discounts vary by provider and vehicle.
Which one Should I Choose?
Choosing between NHS car discount schemes like Motorfinity and electric salary sacrifice depends on individual priorities and circumstances.
NHS discount schemes often make more sense for those seeking long-term ownership, as you'll own the car at the end, unlike salary sacrifice. This option provides greater financing flexibility, allowing for PCP, HP, or cash purchases, suiting various financial situations.
The NHS discount can be particularly impactful for more expensive vehicles, especially electric cars, which tend to have higher price tags.
This can make premium models more accessible compared to salary sacrifice arrangements on less expensive options. Additionally, NHS discount purchases offer complete ownership without mileage limits or condition agreements, providing more freedom for frequent drivers or those with unpredictable usage.
Electric salary sacrifice might be preferable for higher-rate taxpayers seeking to maximise tax benefits, those wanting an all-inclusive package with maintenance and insurance, or individuals who prefer switching cars regularly with minimal hassle.
Motorfinity
At Motorfinity, we pride ourselves on offering exclusive discount across all makes and models.
Whether you're looking for efficiency, style, or cutting-edge technology, our selection is designed to meet every need.
You can choose from Personal Contract Purchase (PCP), Hire Purchase (HP), and leasing deals. Each option provides flexibility and benefits tailored to different driving habits and budgetary needs.
Are you eligible?
Our nations Armed Forces, Veterans, Emergency Services, NHS, Police and Prison Services, the Education and Social Care sectors and more form our eligible audience.
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