So you’ve heard about a newfangled thing called an “electric car salary sacrifice scheme” and you’re wondering if it can snag you a shiny new motor on the cheap.
Sounds fancy, but is it worth your while? In this article, we’ll break it down for you and explain why it’s causing such a buzz.
What is salary sacrifice?
First, a quick primer on salary sacrifice. This means giving up a portion of your salary in exchange for a non-cash benefit. For example, you may already be familiar with sacrificing part of your pay for things like pension contributions, childcare vouchers, or cycle-to-work schemes.
Salary sacrifice is a win-win because you pay for the benefit out of your pre-tax income. This reduces your taxable pay, so you pay less Income Tax and National Insurance. Cha-ching! More money in your pocket.
Introducing EV salary sacrifice
Now, let’s talk electric vehicles (EVs). An EV salary sacrifice scheme works the same way. Instead of buying a car outright, you lease an electric car through your employer and pay for it through lower salary deductions.
You pick a car from a pre-approved selection chosen by your employer. Each month, a portion of your gross pay will automatically be deducted to cover the monthly lease payment. Your employer arranges the leasing deal with a third party and essentially sub-leases the car to you.
The lease usually covers insurance, servicing, road tax and breakdown coverage. All you pay for is charging the car. Lease terms typically run 2-4 years.
The key advantage is reducing your taxable income. Since the lease cost comes out pre-tax, you avoid income tax and national insurance contributions on that amount.
Because it comes out of your pre-tax income, you get to skip paying tax on that amount. And with electric cars attracting very low Benefit-in-Kind tax rates, you could save 30-60% off the retail price! Sweet deal.
How much could you save?
Let’s look at an example. Say your employer offers the Tesla Model 3 for £550/month through salary sacrifice. As a 40% taxpayer, you’d pay £220 tax on the £550. So the effective cost to you is only £330/month.
You also avoid national insurance contributions on the full £550. The savings really add up, making electric cars way more affordable.
What’s included in the scheme?
The lease will include the car itself and it can also include insurance, servicing, road tax and breakdown assistance. Some schemes may also cover replacement cars if yours is off the road.
Electricity costs are not included and the cheapest way to charge is at home. Read our EV charger installation guide to find out more.
Why companies dig it
Ok, but why are companies jumping on this bandwagon? Well, offering an EV salary sacrifice scheme benefits employers too:
- Attracts talent by providing a desirable perk
- Boosts employee satisfaction and retention
- Allows them to reduce carbon emissions and meet sustainability goals
- Doesn’t cost them anything extra to provide
It’s a smart move that ticks a lot of boxes and makes them look progressive. Always nice.
The perks for you
We’ve covered why it works for companies, but what’s actually in it for you? Here are some of the key benefits:
- Access an EV for less than buying privately
- Reduce your tax and national insurance payments
- Lower your carbon footprint while saving cash
- Enjoy new tech and cheaper running costs
- Opportunity to try an EV risk-free
For many, EVs have been unattainable until now. Salary sacrifice finally makes them affordable and accessible. Huzzah!
Making the switch
Alright, it all sounds good in theory. But how do you actually go about getting an electric car through salary sacrifice?
First, your employer needs to set up the necessary agreements and contracts to offer the scheme. Once it’s in place, you’ll be able to lease an eligible EV model and pay for it bit-by-bit through salary deductions.
Your employer should provide info to explain the process and highlight the options available to you. It’s not too tricky, but professional support can help make the transition smooth sailing.
Salary Sacrifice FAQs
Who can get an electric car through salary sacrifice?
Salary sacrifice schemes are offered at the employer’s discretion. So you can only participate if your company provides a program.
You’ll typically need to be over 18 and have a pretty clean driving record. The included insurance may be difficult to obtain if you have multiple endorsements.
What electric cars are available?
Any EV could theoretically be included in a salary sacrifice scheme. But the specific models offered will depend on your employer’s program.
The cars made available are chosen by the third-party handling the leasing and insurance. So the selection reflects what they’ve agreed to provide.
Can I get a used EV through salary sacrifice?
Salary sacrifice involves leasing a brand new electric car (although some schemes include used cars). You give the car back at the end of the lease term or you can extend the lease.
However, some schemes let you purchase the car outright at lease-end if you’d like to keep it. The price is based on the car’s residual market value after your lease term.
So while you can’t lease a used EV, you may be able to buy yours once the lease expires.
Can I get similar savings outside of salary sacrifice?
No, the tax, national insurance, and fleet discounts are exclusive to salary sacrifice deals arranged through your employer. You can’t get the same savings by visiting a regular car dealership on your own. The pre-tax payroll deductions are what makes these schemes so advantageous.
What is the basis for providing the car?
Once you choose a car, your employer leases it through a contract hire agreement. They then essentially sub-lease it to you as part of the salary sacrifice arrangement. The car is considered a taxable “benefit in kind.” At lease-end, you return the car.
Can I have more than one car with salary sacrifice?
Yes, you can have multiple cars via salary sacrifice as long as the total amount deducted doesn’t reduce your pay below the National Living Wage. Your employer would need to authorize getting more than one vehicle. So it’s possible, but requires their approval.
A few schemes to consider
The following companies offer EV salary sacrifice schemes:
The most interesting scheme is run by Octopus, which lets you lease a lightly used EV for a fraction of the cost of buying new.
Octopus Energy salary sacrifice
Monthly payments on popular models like the Renault Zoe, Peugeot e-208, and Vauxhall Mokka-e start at around £300 per month. This all-inclusive rate covers the car payment, insurance, maintenance, and a discounted energy tariff – everything you need for hassle-free electric driving.
Even higher-end EVs like the Tesla Model 3 and Polestar 2 are up to 50% cheaper through Octopus’ used salary sacrifice program compared to conventional finance deals.
When you factor in the fuel savings, running an EV via salary sacrifice could cost half as much as leasing a comparable petrol or diesel model.
Octopus thoroughly vets and services the used EVs before offering them through this innovative program. All of the vehicles are less than two years old with low mileage.
This allows you to access nearly-new electric cars that have already taken the big depreciation hit, without compromising on condition.
The used EV salary sacrifice scheme builds on Octopus’ success in making electric cars more affordable. With over 3,500 partner companies now offering Octopus’ original new car salary sacrifice program as an employee benefit, the road to electric driving just got a whole lot smoother.
Summing up
Electric vehicle salary sacrifice schemes offered by companies allow employees to lease a new electric car through pre-tax salary deductions. This reduces taxable income and provides savings on income tax and national insurance.
The schemes take care of most costs including the car lease, insurance, maintenance, road tax, and breakdown cover. Employees simply pay for charging the vehicle.
Key benefits for employees are affordable access to the latest electric cars and reducing their carbon footprint. Employers can attract talent, boost motivation, and support sustainability goals.
With tax savings factored in, EV salary sacrifice makes green vehicles budget-friendly through convenient monthly deductions from salary. Companies are using these schemes to empower adoption of electric cars.
First of all great article on salary sacrifice. Is there a limit to what percentage of your salary you can sacrifice? Also how do bonuses affect the scheme? Thanks
Bonuses don’t affect salary sacrifice – they are additional to taxable income and cannot offset salary sacrifice. In terms of percentage, there isn’t limit to how much you can sacrifice except your taxable income must remain above the national minimum wage.
Can a Salary Sacrifice Scheme include Fuel too (electricity?). I currently have a company EV (Merc EQC) which is fully expensed and on a 3 year lease. As there is no BIK on electricity, I have opted for “personal fuel” too, as this is a cost effective way to pay for all my personal and business mileage. If we changed to a salary sacrifice scheme, I would still be charged BIK for the car, but can the scheme also include fuel, including for personal use, given the BIK for Electricity is currently 0%. ? If not presume I would still be able to charge the company for any business mileage at the advisory rate (9p per mile for EVs) if I’ve paid for the electricity?
Hi Brendan, you pay BiK tax and tax on your fuel allowance depending on the type of scheme. With salary sacrifice your fuel allowance can sit alongside it but you are responsible for the cost of fuel/electric charging.
I have been wanting to switch to an electric car for years now due to the lower running costs and environmental benefits. But the upfront price of buying an EV was too high for me. When my company introduced an EV salary sacrifice scheme, I jumped at the chance to finally go electric.
The process was surprisingly smooth. I was able to easily select from a choice of models that fit within my budget through the leasing company’s online portal. After choosing my preferred EV, the monthly lease payments are automatically deducted from my salary. With the tax savings, my effective monthly cost is around 40% less than if I had leased privately.
One thing I appreciate is that insurance, maintenance, and roadside assistance are all included in the monthly cost. The only extra expense is paying for electricity to charge the car. Overall, I’m glad I took advantage of this salary sacrifice program to affordably switch to an EV. My new car has lower running costs, cutting my fuel spending by 75%. I encourage others to check if their employer offers a scheme like this to make the switch to electric.
Thanks James, what car did you choose?
Great overview of this new EV leasing option! I’m intrigued by the potential savings through salary sacrifice. A few questions come to mind:
– How much maintenance is included in the lease? Does it cover things like tire replacement and minor repairs?
– You mention the lease is 2-4 years typically. Is there an option to extend the lease if I want to keep the car longer?
– For the purchase option at lease-end, is the residual value set when you first get the car or assessed at the end of the term?
– Do all employers offer the same EV models or does the selection vary by company? Trying to understand the car choices available.
– Is there a mileage limit per year with these leases? Don’t want to risk excess mileage fees.
Really appreciate you laying out the details on how these schemes work. The tax savings make electric cars way more affordable. Hope to see more companies offer EV salary sacrifice leasing soon! Excited at the possibility of getting an EV for less.
Hi Sammy:
In answer to your points:
– Tyre replacement is a wear and tear condition in most policies, but some schemes let you add it into the monthly payments.
– There is sometimes an option to extend the lease or buy outright, but it depends on the company providing the lease.
– Not all employers offer the same EVs and the pool is limited by the leasing partner.
– There is usually a mileage limit but this is adjustable. I always recommend leasing enough miles to cover more than your needs.
Thanks!
With maintenance you can sometimes set a certain level, such as the first minor service, or tyre and alloy cover. These optional extras will increase the cost of the lease though. In my experience, you cannot easily extend the lease so it’s best just to get another EV.
Beware availability. I signed up for a salary sacrifice EV back in December last year. By July, still no car, just a series of emails about how the delivery was being put back by another month. I cancelled.
That can be said for all leases. Check stock before ordering. Some companies have cars ready to go, others have to order them.
The tax and National Insurance savings you highlighted are a huge benefit I hadn’t fully appreciated before. I like your example with the Tesla Model 3 – reducing the effective monthly cost from £550 to £330 is amazing. That’s a 40% discount just by using pre-tax salary deductions!
I also didn’t realise these schemes often cover insurance, servicing, road tax and breakdown assistance. Having those costs bundled in makes it so much more affordable.
The part about reducing your carbon footprint while saving money really resonates with me too. This seems like an ideal way to “go green” in a cost-effective way.
I’m definitely going to look into whether my employer offers an EV salary sacrifice program. If not, it’s something I may suggest they consider providing as an employee benefit. Being able to lease an electric car for hundreds less per month would be a huge help right now. Thanks for highlighting this innovative option!
Hi Sarah, no worries. The great thing about salary sacrifice schemes is they rarely cost the employer anything to set up. For example, Octopus Energy has no onboarding fees so employees see the benefits without the employer soaking up any costs.
If your employer doesn’t offer a salary sacrifice scheme you can ask them to to, although they are under no obligation to do so. The truth is that most organisations we speak with will support employees in the EV transition. Check out this new research on workplace charging.
Great on paper BUT:
No ownership – With a pure lease, you don’t end up owning the car. This means you constantly need to pay lease fees to keep having a new vehicle. Leasing in the long-term is often more expensive than purchasing outright.
Mileage limits – Lease contracts often limit the total miles you can travel over the lease term. Going over this limit leads to excess mileage fees which can be costly. So a short lease may not suit high mileage drivers.
This isn’t the ideal solution to buying an electric car for everyone.
Hi David,
You are right on both counts, so a lease isn’t for everyone. Those who want no mileage limit and to own their vehicle should look into a hire purchase agreement.