Craig Harman, a tax specialist and partner at Perrys Chartered Accountants, answers your questions about the electric vehicle salary sacrifice scheme
What is the electric vehicle salary sacrifice scheme?
Much like schemes for pension contributions, childcare and charitable giving, the electric vehicle salary sacrifice scheme allows employees to pay for an electric car each month using their gross salary. This means the payment comes out before deductions are made for tax and other contributions.
An electric vehicle will be taxed according to the value of the benefit itself – known as a benefit in kind (BIK). This is the value of the benefit you receive i.e. the car. For battery- operated electric vehicles, the tax is 1% for 2021/2022 and 2% for 2022/2023. This makes it an incredibly low-cost way to own an electric vehicle.
How does the electric vehicle salary sacrifice work?
In order to benefit from the electric vehicle salary sacrifice scheme, your employer will need to agree to set up, or already have in place, a scheme and run it through their payroll. As an employee, you won’t own the vehicle yourself, but will instead lease it through your employer as a company car. You will then use your gross income to finance the vehicle. Your Income Tax will be based on your remaining salary and the BIK value.
There are other benefits too. Because you are leasing the vehicle through your employer you won’t need to pay a deposit or undergo any credit checks; your payments will include insurance, servicing and maintenance, breakdown cover and accident management; and electric vehicles are exempt from road tax.
What sort of savings can be made on an electric vehicle salary sacrifice scheme?
By leasing a vehicle in this way, you can save up to 50% on the monthly cost of owning a vehicle. This saving is generated through reductions in National Insurance and Income Tax payments, as well as associated savings like maintenance and insurance.
Additionally, because the employer is responsible for leasing the vehicle under salary sacrifice, they will pay the VAT on the vehicle instead of you. Employers can then reclaim 10% of this VAT back from the government. Employers will also save on reduced employer National Insurance payments, which will be lower due to the salary sacrifice the employee is making. The more employees there are taking part, the more these savings will increase.
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