Electric cars and salary sacrifice – what’s the big deal?

electric cars and salary sacrifice

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.

Alfred drives a Tesla Model 3 Standard Range Plus but has his eye on a fully-electric pick-up truck. He'd love an electric Ford Ranger, which should be a real thing in a few years!