Everything You Need To Know About EV Salary Sacrifice: Employer & Employee Perspective

The EV Salary Sacrifice scheme (SalSac) can be mutually beneficial to both your business as the employer and your employees in different ways.

To understand both perspectives, this will help:

Salary Sacrifice from the employer’s perspective

What is Salary Sacrifice?

Salary sacrifice is a BIK (benefit in kind) scheme where employees agree to give up part of their salary in exchange for a non-cash benefit, i.e. an electric car. This benefit is tax-efficient for both employers and employees, making it a popular choice for businesses looking to offer attractive perks while promoting sustainability.

What benefit is it to employers to offer salary sacrifice?

–          Tax savings

–          Employee attraction and retention

–          CSR

–          No upfront costs

Implementing a salary sacrifice scheme for electric cars offers substantial tax savings for employers. By reducing the overall payroll through the sacrificed salary, employers can save on National Insurance Contributions (NICs). This decrease in payroll costs can significantly enhance the financial efficiency of the business, making it an attractive option for companies looking to optimise their expenditures.

In addition to financial benefits, salary sacrifice schemes can greatly enhance employee attraction and retention. Offering such a scheme demonstrates a commitment to employee welfare by providing them with a valuable and cost-effective benefit. Potential hires are more likely to be drawn to a company that offers innovative and attractive perks, while current employees are more likely to stay, appreciating the added value to their compensation package.

Promoting EVs through a salary sacrifice scheme also aligns perfectly with corporate social responsibility (CSR) goals. Encouraging the use of EVs not only supports environmental sustainability but also enhances the company’s green credentials. This can improve the company’s public image and reputation, demonstrating a proactive approach to reducing carbon footprints and contributing to a cleaner environment.

Finally, employers benefit from not having to bear the upfront costs associated with purchasing electric vehicles. Instead, the costs are spread over the lease term, making the financial commitment more manageable. This arrangement allows businesses to offer high-value benefits without significant initial capital outlay, thereby maintaining cash flow and financial stability.

What are the potential drawbacks of offering salary sacrifice:

–          Admin

–          Partnering costs

–          Backlash from reduced pay

–          Long-term commitments

While offering a salary sacrifice scheme can bring numerous benefits to employers, there are also potential drawbacks to consider. One significant concern is the administrative burden associated with implementing and managing the scheme. This includes setting up the scheme within the payroll system, adjusting employees’ salaries, and ensuring compliance with relevant regulations.

Additionally, there may be costs involved in partnering with a leasing provider and providing ongoing support to employees participating in the scheme.

Another consideration is the potential impact on employee morale if the sacrificed salary significantly reduces take-home pay or affects other salary-based benefits.

Employers must also be mindful of the long-term commitment involved in lease agreements and the potential risks associated with changes in tax legislation or economic conditions.

How to set up Salary Sacrifice within your business

To get started with a salary sacrifice scheme for electric cars, the first step is to choose a leasing provider that specialises in such arrangements. This provider will be responsible for managing the lease agreements and ensuring that vehicle maintenance is taken care of, allowing you to focus on other aspects of your business. Look for providers with a strong track record in salary sacrifice schemes and electric vehicle leasing to ensure a smooth process.

Once you’ve selected a leasing provider, the next step is to set up the scheme within your payroll system. This involves configuring your payroll to allow employees to opt into the scheme and select their desired electric vehicle. Coordination with your leasing provider is crucial during this stage to ensure that all administrative details are correctly handled. After the scheme is in place, you’ll need to adjust the payroll for participating employees. The sacrificed portion of their salary will be deducted before tax, which can result in significant tax savings for both the employee and the employer.

Finally, providing ongoing support and clear information to employees is essential. This support helps them understand the benefits of the scheme, how to select their vehicle, and what to expect throughout the lease term. Regular updates and accessible resources can enhance employee satisfaction and ensure they get the most out of the salary sacrifice scheme.

Salary Sacrifice from an employee’s perspective

Benefits for employees who opt in to the salary sacrifice scheme:

–          Tax savings

–          Cheaper than buying

–          Inclusive package

–          Carbon footprint

Your employee can benefit from tax savings through a salary sacrifice scheme for electric cars, as their sacrificed salary is deducted before tax, resulting in savings on Income Tax and National Insurance Contributions (NICs).

Additionally, leasing an electric car through salary sacrifice can lead to lower costs compared to traditional car ownership or leasing, thanks to the tax advantages.

Most salary sacrifice schemes offer an inclusive package that includes insurance, maintenance, and breakdown cover, making it a hassle-free option for your employee.

Furthermore, driving an electric car not only reduces their carbon footprint but also contributes to a cleaner environment, aligning with sustainability goals.

Potential drawbacks to employees:

–          Impact on salary

–          Understand the penalties

–          Long-term commitment

–          Tax implications

Your employee should carefully consider the impact on their take-home pay and any potential effects on pension contributions or other salary-based benefits before opting into a salary sacrifice scheme for electric cars.

It’s important to be fully aware of the lease terms and conditions, including any penalties for early termination or excess mileage charges, to avoid unexpected expenses.

Additionally, they should think about their long-term plans and ensure that the lease term aligns with their future needs and employment situation to avoid any complications down the line.

Lastly, staying informed about the tax implications and any changes in tax legislation that might affect the benefits of the scheme is crucial for making well-informed decisions.

Examples of the salary sacrifice scheme in action

Examples based on 3-year personal lease, 10,000 miles per annum for 40% taxpayer (£50k – £100k). The net monthly cost includes rental, maintenance, insurance and Class 1A NIC.