The Benefits of Salary Sacrifice for Electric Cars

Introduction

Electric cars are known for their environmental benefits, but they can often come with a higher price tag compared to petrol equivalents. However, a workplace scheme called salary sacrifice is making electric cars more affordable for employees.

What is Salary Sacrifice?

Salary sacrifice is an arrangement where an employee agrees to give up a portion of their pre-tax salary in exchange for a non-cash benefit provided by their employer. This can save employees up to 60% of the cost of funding an electric vehicle themselves from their taxed income.

How is Salary Sacrifice Calculated?

For example, on a car lease costing £600 per month, an employee taxed at 40% would pay £240 in income tax. This amount is then deducted from the lease charge, making the car cost them £360 from their take-home salary.

Benefits of Salary Sacrifice

For employees, salary sacrifice allows them to have a new electric vehicle at a significantly lower cost than if they were to source and finance one themselves. Employers can also use this scheme as a retention and recruitment incentive.

Downsides of Salary Sacrifice

While salary sacrifice offers many benefits, there are also downsides to consider. Employees must return the car at the end of the lease period and may face additional costs if they exceed mileage limits or damage the vehicle. Additionally, there may be implications for pension contributions and borrowing capabilities.

Electric Car Salary Sacrifice Example

Car: MG 4 Long Range

P11D Value: £29,985

Private Lease Cost: £520 (including insurance)

20% Tax Payer: Net sacrifice after tax – £364

40% Tax Payer: Net sacrifice after tax – £322

Overall, salary sacrifice is a beneficial scheme that is making electric cars more accessible to employees, providing both financial savings and environmental advantages.