March 29, 2023

The Electric and Hybrid Car Salary Sacrifice Scheme 

Key take away points:

  • The salary sacrifice scheme.
  • How it works.
  • Finance illustration.

We would like to introduce the employee benefit which enables you to lease a brand-new electric or hybrid company car through a salary sacrifice scheme.

Electric cars are now compatible with many employees' driving patterns and with 2% company car tax payable on electric vehicles through to April 2025, the salary sacrifice scheme is the cheapest way of acquiring an electric car.

The salary sacrifice scheme

The salary sacrifice scheme enables the leasing of a brand new electric or hybrid car, fully serviced, maintained, and insured for either 2, 3 or 4 years and allows you to make substantial savings over traditional personal finance methods due to income tax, national insurance (NI) savings and fleet discounts on vehicles and maintenance costs.

The car is classed by HMRC as a ‘benefit in kind’ on which employees have to pay company car tax. However, choosing an electric car will minimise the company car tax payable.

The scheme offers:

  • A brand-new car every 2, 3, or 4 years.
  • Income tax and National Insurance savings.
  • No deposit required – fixed budget monthly rentals.
  • No credit checks to undergo.
  • Includes road tax (if applicable) for the whole contract.
  • Includes all servicing and repairs.
  • Unlimited tyre replacement/repair (even due to accidental damage.)
  • Comprehensive breakdown cover.
  • Fully comprehensive business insurance, fixed for 3 years (regardless of any claims.)
  • Additional 2 named drivers allowed (mine age 18 years.)
  • VAT savings for VAT registered organisations.

How does it work?

Money is saved by exchanging part of your salary before it is taxed, thereby reducing the amount of tax and national insurance you pay on the remainder. For cash allowance drivers, using the scheme means all your allowance can go towards paying for the vehicle.

As the vehicle is classed as a ‘Company Car’ you must pay ‘company car tax’ at the prevailing rate for the vehicle (via an amended tax code) however this is much less than the savings you will make in income tax and NI - especially for zero emission electric cars.

At the end of the contract, you can either hand the keys back and order a new car or alternatively, you can purchase the vehicle yourself.

A finance illustration

Based on the finance illustration below, you would make an overall saving of £339.61 per month via this arrangement and see a reduction to your net pay by £522.69*.

  • Gross monthly salary deduction: £862.30 per month**
  • Income tax saving: -£344.92
  • NI saving: -£28.02
  • Company Car tax payable: £33.34

*Figures based on 40% income tax and 3.25% NI taxpayer.

**This figure includes everything except fuel costs.

Next steps…

Whether you are planning to lease an electric or hybrid vehicle soon, or are simply interested in finding out more about the scheme in general, we will work with you to decide if a salary sacrifice scheme would be the right finance solution for you. Get in touch today for more information.

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