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Electric car salary sacrifice schemes: What are they and how can you save on EV car subscription and leasing?

Learn how you can save 30-60% on your next EV!
Electric car salary sacrifice schemes: What are they and how can you save on EV car subscription and leasing?
Summary
  • Salary sacrifice is when you give up part of your salary in exchange for certain benefits.
  • You can lease, or subscribe, to a car through your company which can be considered for "personal use". 
  • Car subscriptions are a new way of buying a car. It's not like leasing or buying outright because it doesn't tie you into a long-term contract. Instead, you pay a simple, all-inclusive monthly fee that includes all costs associated with car ownership. 
  • Car subscriptions are now available via salary sacrifice through the Electric Car Scheme.

If you could save money on your next car, would you? Especially if you're in the market for a new EV, you may want to explore all your options.

Salary sacrifice schemes for electric cars are a tax-efficient way to get yourself behind the wheel of a new EV at a discounted price. And there's a way to get an EV subscription through salary sacrifice!

If you're thinking of subscribing to an electric car and want to know more about the salary sacrifice, read on.

What is salary sacrifice?

Let's cover the basics first. The concept of salary sacrifice is simple. Employees give up part of their cash pay in exchange for non-cash benefits in a salary sacrifice arrangement.

The benefits gained through salary sacrifice would depend on the employer. 

Here's a list of some of the more common salary sacrifice benefits:

  • Company cars.
  • Car parking near your workplace.
  • Childcare vouchers.
  • Health checks.
  • Training.
  • Mobile phones, laptops, and others.
  • Cycle-to-work schemes.
  • Gym membership.

There's more, but you may have to dig through the HMRC list yourself!

How does EV salary sacrifice work

The good news is that you can get an electric car for personal use through your employer!

A car through The Electric Car Scheme is not considered a 'company car' but is seen as an employee benefit. Therefore, the value of the benefit-in-kind (BIK) is set by HMRC, and that BIK is taxable.

All things considered, you'll still be saving between £5,000 and £15,000 on a new EV (according to our friends at the Electric Car Scheme).

The UK now has a legally binding target of getting to Net Zero by 2050 and is also committed to stopping the sale of non-electric vehicles by 2035. This is why the government is offering the incentive to get more EVs on British roads.

The Electric Car Scheme recently launched the UK's first car subscription salary sacrifice service. Drivers are now able to subscribe to an electric car through their employers!

Leasing a vehicle is still available, but we at Car Sloth love car subscriptions, so we'll focus on this!

If you're an employee, the way it works is as follows:

  1. Speak to your employer and express interest in the scheme.
  2. The employer then speaks to ECS, who helps set it all up!
  3. You pick the car you want from the Electric Car Scheme website.
  4. Enjoy the savings!

If you're an employer, the usual steps include::

  1. Companies sign up for The Electric Car Scheme to access admin support.
  2. There's risk protection at no cost to the employer.
  3. Launch the scheme to your employees through webinars, emails, and more.
  4. Employers get a dedicated account manager who supports employees with car selection, delivery and ongoing support.

Instead of subscribing to, or leasing an electric car in the usual way, which is paid using your post-tax (or net) income, the fixed monthly payments are taken from your salary before any income tax or National Insurance is paid.

Do you pay tax on a salary-sacrifice car?

While you'll save on income tax and National Insurance by sacrificing your salary, you'll incur a benefit-in-kind tax. The amount depends on the value of the car and the BIK rate.

At the time of writing, the rate is set at 2% until the 2024-2025 tax year. Therefore, you must pay the tax on the benefit provided.

What does this mean in real terms and my salary?

To put things into perspective, we've created this illustration:

A graphic explaining how you can save 332 British pounds on your take-home pay for a Hyundai IONIQ 5.
Note: Assumes 4-year lease starts on 13/09/2022. Prices are indicative as the best deals on the market change daily. Assumes higher rate taxpayer.

The benefits of car subscription via salary sacrifice

We now know the benefits of salary sacrifice. So let's turn our focus on car subscriptions. You'll not only be saving on your income tax, but the nature of a car subscription means you'll have a lot more flexibility and less stress when it comes to the usual costs associated with owning a car.

A key benefit is that you'll be able to switch your cars frequently, and you can get your vehicle more quickly. But, more importantly, you won't have to worry about maintenance costs or insurance as they're taken care of by your employer and the scheme.

Here's the complete list of what's included in your monthly subscription payment:

  • Comprehensive insurance cover.
  • Maintenance and servicing.
  • 24/7 road assistance.
  • Road tax and congestion charges.
  • Driver safety telematics.
  • Fair wear & tear on tyres.
  • You can also add extra mileage, up to two additional drivers and a range of charging network options.

Can anyone get an electric car on the salary sacrifice scheme?

Yes, but it really depends on your employer. If your employer is signed up, typically, everyone can access the scheme subject to the following:

  • Minimum age 21.
  • Completion of 6 months' service and outside of probation.
  • Minimum salary of £20,000 after all salary sacrifice reductions.
  • Full driving licence for a minimum of 6 months, with no more than 6 current endorsement points for all drivers of the vehicle.

However, your employer makes the final call on whether to roll this to everyone or impose their own rules. For example, maybe the company you work for may offer only to employees who have been with the company for a significant amount of time, as a way to incentives retention.

Frequently asked questions

As an employee, will I be subject to a credit check when I apply for salary sacrifice?

No. Unlike other types of car finance and car subscription, you won't get your credit report checked. Instead, your employer will be subjected to a company credit check.

As an employer, is it easy to pass company credit checks?

Yes. Until recently, start-ups and other young companies might have found it challenging to offer salary sacrifice to their employees, as rules are more stringent for them.

However, with the introduction of car subscriptions, the credit history requirements are as difficult to pass, so many new companies can attract talent by offering this car scheme. This is due to the shorter financial commitment of the electric car hire arrangement.

Which electric cars qualify for the salary sacrifice scheme?

You can subscribe to practically any EV car available on the market.

For example, you can get behind the wheel of the following cars:

  • Peugeot e-2008 - Starting from £318/month
  • Kia e-Niro - Starting from £443/month
  • Fiat 500e - Starting from £323/month

You can also get premium models like the Tesla Model 3 and the Mercedes-Benz EQE on salary sacrifice. You can browse the full range of electric vehicles here (you may be asked to log in).

What happens if I leave my job?

If you decide to resign or leave your employer for any other reason, you will have to return the car.

If you do so before the end of the lease or car subscription term, you may be required to pay an early termination fee from your final salary.

The fee will depend on the car and the remaining term on your lease or subscription agreement.

What happens if I work remotely and decide to drive outside the UK?

You will have to speak with your employer and determine the rules. Some subscription providers allow their users to leave the country and drive abroad, provided they pay for the necessary insurance and breakdown cover. 

Is electric car salary sacrifice worth it?

If you're already considering getting an EV, it's worth it! The cost saving alone means you will end up paying less income tax. Whether you opt for a lease or subscription, owning an electric doesn't get any cheaper than this.

As an employee, you may have the difficult job of convincing your employer to sign up for an electric car scheme. Still, you can show them this guide which outlines their benefits. 

Why not browse the electric cars available on Electric Car Scheme’s website and see if you can find one for yourself? 

Browse all cars available on subscription

There are hundreds of cars available via UK subscription companies.

Article sources
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