EV salary sacrifice explained: is this the way to get an electric car cheaply?

With the 2030 ban on new petrol and diesel cars fast approaching, it is crucial to understand how to get an electric car in the most cost-effective way.

Salary sacrifice is one of the best ways to make an electric car more affordable, especially when new electric cars are still expensive compared to new petrol and diesel cars.

And despite rumors to the contrary, the salary sacrifice was left alone in the Autumn Budget.

This isn’t surprising given its popularity: research has shown that EV salary sacrifices have increased by 68 percent year-on-year.

How can you use this to your advantage to get an EV through an employer benefit?

What is salary sacrifice?

This is a tax-favorable formal arrangement between an employer and an employee, whereby employees can give up part of their salary for a non-cash benefit – in this case an electric car.

As an employee you benefit because the part of the salary you give up for your car is not subject to income tax or NICs, reducing your taxable salary.

How does it work?

You lease the EV from your employer, who rents it from an external company – and your EV can be for either business or personal use. The amount that your car costs each month to lease is then deducted from your pre-tax salary

When you sign up for an EV salary scheme, you choose a car from a list of vehicles approved by your employer, based on your budget, needs and wants.

You lease the EV from your employer, who rents it from an external company – and your EV can be for either business or personal use.

The amount that your car costs each month to lease is then deducted from your pre-tax salary. Typically, arrangements last between two and four years.

As long as you are over 18 years old and do not have a driver’s license without too many points, you are eligible.

How can you get an electric car cheaper?

Salary sacrifice means your taxable income is reduced and you usually also get service, maintenance and insurance on your EV

By paying less income tax and NI contributions, your taxable income has been reduced. Buying an electric car through a salary sacrifice therefore offers a major cost-saving advantage – usually between 30 and 60 percent compared to leasing.

Another big advantage of salary sacrifice is that service, maintenance and insurance are usually included, so with an electric vehicle you only pay for charging.

Because many offices also offer charging points at work, you may even be able to charge for free.

What tax do you pay if you lease a car via salary sacrifice?

You currently pay benefit tax (BIK) on electric cars.

BIK is a tax on the benefits you receive from your employer on top of your salary.

It increases by 1 percent per year. Currently the BIK is set at 2 percent for zero- and low-emission cars (EVs), but by 2027/2028 the BIK will reach 5 percent.

For highly polluting petrol and diesel cars, the BIK can rise to 37 percent.

Low BIK rates are a huge subsidy and tax benefit for electric vehicles, making them perfect for wage sacrifice schemes.

If you lease a Tesla Model Y that costs £500 a month and you’re in the 40 per cent tax bracket, you’ll pay £200 tax on that £500, leaving you with £300. In fact, your Tesla Model Y, which should cost you £500 to lease, will only cost you £300 via salary sacrifice

For example, if you decide to lease an EV for £500 per month after looking at the options offered through your work wage sacrifice scheme, such as the new Tesla Model Y, that is the amount that will be deducted from your gross salary.

Suppose you then fall into the 40 per cent tax bracket, you would pay £200 tax on that £500, leaving you with £300.

In fact, your Tesla Model Y, which should cost you £500 to lease, will only cost you £300.

And because you do not pay national insurance on the €500, you benefit from further savings.

The entry-level Tesla Model Y costs £46,990 and scores 0g/km CO2 emissions, meaning the BIK tax is currently just 2 per cent. It increases by 1 percent every year, so for 2025/2026 it will be 3 percent.

At the time of writing, £939.80 is taxable, on which (if you are a 40 per cent taxpayer) you pay 40 per cent.

In a year you only pay € 375.92 in BIK, or € 31.33 per month.

Salary Sacrifice in the Current EV Climate: The Easiest Way to Switch?

Salary sacrifices appear to be an increasingly popular way to obtain a new electric car.

The British Vehicle Rental and Leasing Association found that salary sacrifice leasing schemes increased by 68 percent year-on-year in the third quarter of 2023.

And 91 percent of wage sacrifice cars in the first quarter of 2023 were fully electric.

A 2022 YouGov survey found that once employees fully understood the benefits of salary sacrifice, three-quarters (74 percent) said they would like the scheme offered in their workplace.

In October 2024, EV salary sacrifice provider The Electric Car Scheme said it did experienced significant overall growth of 160 percent due to demand for both new and used electric vehicles through salary sacrifice.

And the availability of schemes will increase.

In the final quarter of 2023, HR Magazine found that more than two-thirds (68 percent) of small and medium-sized businesses (SMEs) are considering offering employees a salary sacrifice for electric cars, while more than half (56 percent) plan to do so to do. implement in the next twelve months.

With the government recently reaffirming the ban on new petrol and diesel vehicles by 2030, motorists are increasingly aware of the need to make the switch to zero emissions.

Many are looking to employers to help them make this transition, while at the same time companies try to transition to a greener model, reduce carbon footprints and keep employees happy.

Sacrificing a salary for an electric car gives people the opportunity to get into an electric car while saving money and with very little hassle – one reason why it is so popular.

Can you lease used electric vehicles via salary quotation?

Used EVs are not available from all salary quote providers – this depends on the scheme

Theoretically yes, but in practice, because employers do not lease the car to you themselves, but via a special salary sacrifice company, you can only choose from the EVs that the salary sacrifice leaser offers.

However, this tends to be a very wide range of electric vehicles, so you’re unlikely to have any trouble finding one for you.

Not all salary quote providers offer used electric car leasing – this is done on a per scheme basis – so check your employer’s scheme to find out.

Can you buy the EV when the lease period expires?

Normally, as with salary sacrifice schemes, you can only give the car back, but some schemes allow you to buy the EV at market value at the end of the agreement.