Savings of 30-60% are possible on a new electric car through salary sacrifice. This could reduce the price of a Tesla Model 3 from £1,199 to just £489 per month for an employee in a higher tax band.
If you work for a company you could be eligible for a salary sacrifice scheme such as one from elmo, which is based on a subscription model. This scheme allows employees to ‘sacrifice’ some of their gross salary in return for an electric car. Instead of taking out an EV subscription personally and paying for the car from post-tax pay, the monthly subscription cost is taken from pre-tax pay which reduces the employee’s tax liability and allows them to save 30-60% of the cost, depending on their salary and tax bracket.
Salary sacrifice cars are not company cars but are still viewed as an employee benefit by HMRC. This means that the car’s value as a benefit-in-kind (BIK) is taxable, but the BIK rate on an electric car set by HMRC is currently very low (2% until April 2025, then rising by 1% each year to 5% in April 2028). This is compared to BIK as high as 37% for petrol or diesel cars, so there is a significant saving for EVs.
The key difference between elmo and other salary sacrifice schemes is that elmo’s package is based on a subscription model. This means that, unlike a scheme based on a leasing model, there is no deposit and no early termination fees, and you can change your car at any point.
A car could be available relatively quickly – possibly as soon as a week – and the scheme allows for 800 miles per month, although this can be increased. You can also add up to two additional drivers. elmo’s all-inclusive managed salary sacrifice package includes insurance, vehicle excise duty, MOT, servicing and breakdown cover. elmo can organise a home charger as well as assist with public charging.
All the paperwork is managed by elmo including handling all of the administration around payroll and HMRC – with the scheme potentially being set up within just one week – and the cost of running the scheme for a business is effectively zero. Businesses can usually also reclaim 50% of the VAT on the subscription. Incorporated entities such as limited companies are eligible for salary sacrifice schemes and the scheme can be operated for large corporations – employees and employers – and companies employing just one person.
Mileage costs for business travel can still be reclaimed with elmo’s salary sacrifice scheme. If the car is considered a company car, the Government currently advises a rate of five pence per mile for fully electric cars. If employees use their own personal vehicle, the mileage allowance payments for electric cars are the same as for ICE vehicles: 45p per mile for the first 10,000 miles per year, and 25p per mile after that. Salary sacrifice cars can be used for both business and personal use.
A lower rate taxpayer could save £143 per month on a Fiat 500 Electric, taking the price from £477 to £334 per month, a 30% saving.
Examples of cars available from elmo include the Audi e-tron, Citroen e-C4, Fiat 500 Electric, Kia e-Niro, MG5 EV, MG ZS EV, Peugeot e-2008, Polestar 2, Renault ZOE, Tesla Model 3, Tesla Model Y, Vauxhall Corsa-e and Vauxhall Mokka-e.
The scheme on offer from elmo is a UK first, with no one else currently offering a fully managed, electric car subscription salary sacrifice scheme.