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Salary sacrifice schemes have been around for a while now, and they’re becoming increasingly popular for electric vehicles with benefits for both employers and employees.
Here we look at what salary sacrifice schemes are, how they work, the tax benefits and the environmental considerations.
With a salary sacrifice scheme, an employee sacrifices some of their salary to lease an electric vehicle from their employer.
Their monthly payments on the EV lease will be taken directly from their salary pre-tax. This will reduce the size of the employee’s gross salary and cut their tax bill in the process. They can also end up paying up to 40% less for the EV, depending on their tax bracket.
Say you lease a new EV from your employer with a £500 monthly payment. If you fall into the 40% tax bracket, you would have paid £200 income tax on the £500 leaving you with £300.
By paying for it through salary sacrifice, the money isn’t taxed as it comes from your gross salary pre-tax. This means that the EV lease which costs £500 a month is effectively only costing you £300. That’s a 40% saving.
So, is salary sacrifice worth it for employees? There are various benefits on offer, including:
It’s the employer’s job to implement the scheme and offer the benefit to their employees. To put a salary sacrifice scheme in place, companies will need to partner with a specialist EV provider, such as The Electric Car Scheme – one of our partners at Green Car Guide.
The provider works alongside the company to design a scheme that fits the unique needs of that business. They will help them detail which EVs are available through salary sacrifice and will manage all aspects of the scheme including factors like payroll.
Employers can ensure their staff also get the whole package through the scheme too, not just an EV. This includes the car, charger, energy, insurance, servicing, maintenance, breakdown and tyres.
There are a number of salary sacrifice benefits for employers, including:
Yes, you can lease either a new or used electric car through a salary sacrifice scheme. As previously mentioned, employers will work with salary sacrifice providers to implement the scheme, meaning the pool of cars to choose from will depend on the provider.
Most will have a wide selection of EVs on offer, including used cars. So, whether you want to drive the likes of a Tesla Model Y, a VW E-Golf, or an Audi E-Tron Sportback, you’ll need to speak to your employer about the scheme and understand the potential cars on offer.
For employees, there are some potential disadvantages of salary sacrifice. They include:
The latest figures show that salary sacrifice schemes are growing and becoming a very popular way to lease a new electric car. According to the British Vehicle Rental and Leasing Association, salary sacrifice leasing schemes were up 68% year-on-year (YOY) in Q3 2023. Plus, 91% of salary sacrifice cars in Q1 2023 were fully electric.
And data from Octopus Electric Vehicles shows that businesses signed up to the scheme grew 50% year-on-year in Q3 2024.
It looks like salary sacrifice is here to stay.
Whether you’re an employer considering offering the scheme to your employees or a staff member looking at driving an EV through a salary sacrifice scheme, there are plenty of things to consider.
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