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September 29th 2022

Electric cars and salary sacrifice

Electric vehicles (EVs) could provide a cost-effective and attractive way to reduce your carbon footprint, improve your ESG credentials, facilitate recruitment and retention of talent, as well as saving your business money. EVs are now a realistic and attractive alternative to traditional cars.

Did you know that salary sacrifice schemes can be one of the most cost-effective ways to drive an electric car? An efficient salary sacrifice scheme will not only allow employees to save more than a third of the cost of a new electric car, but it will also save your business employment costs.

What is an electric car salary sacrifice?

Put simply, an employer acquires an electric vehicle, typically under a lease arrangement. The employee gives up salary equivalent to the lease cost, so the employee has offset the cost the employer has incurred.

The employer funds the cost of the lease payments with the sacrificed salary (and employer NIC savings). In effect the employee "pays" for an electric car each month but there are NIC savings for the employer and employee - it’s the same as other salary sacrifice schemes, such as childcare or cycle to work schemes.

Unlike some other benefits that you might take through salary sacrifice, an electric vehicle isn’t taxed based on the salary that is sacrificed; instead, income tax is charged on the value of the benefit in kind (BIK). The BIK in this case is the EV. It’s what has helped make salary sacrifice the cheapest way to own an electric car. For EVs, the taxable BIK is calculated as 2% of the list price of the car for 2022/23.


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