Salary Sacrifice

Salary sacrifice is an arrangement between an employer and employee where the employee agrees to reduce their gross salary in return for a new car.

Setting up a salary sacrifice scheme is a formal process which the employer must undertake with the e-car lease team.

As a specialist EV contract hire credit broker and fleet management business, our customers will use our services to lease an EV from one of our preferred finance companies, then enter into a formal agreement with the employee to confirm the sacrifice of the gross salary. All of this must be clearly documented between all parties, and for clarity the lease agreement will not be in the name of the employee.

Salary sacrifice and company car schemes are two distinct ways in which an employer can offer staff benefits. With a company car scheme, the employer will typically arrange a contract hire vehicle for the employee (generally including all servicing, maintenance, fuel and insurance) at no cost to the employee apart from any BiK or fuel benefit charges which may apply. There are generally no deductions from the employee’s salary with a company car scheme.

In contrast, a salary sacrifice, which does necessitate a gross salary reduction, can be used to enhance benefits for those employees who do not qualify for the company car scheme or who take a cash allowance and opted out of the company car scheme.

In order to proceed with the e-car lease salary sacrifice scheme, the employer must engage our credit brokering services to arrange EVs for their employees. In doing so, the employer provides an incredible benefit to its employees at almost no additional cost to the business. Indeed, the employer will benefit from monthly NIC savings which can be used to offset any costs associated with Early Termination.

And in assisting employees to utilise new and safe electric cars, the employer will enhance staff retention and promote sustainable transport solutions which is a fundamental part of the UK’s decarbonisation strategy and the 2035 plan towards zero-emission vehicles (cars and vans).

As part of our employee guide to salary sacrifice, the e-car lease team has set out examples of how much an employee could potentially save. In summary, because an employee is utilising their gross salary to pay for a new car (i.e. before any NIC or Income tax) this is generally much cheaper than if an employee uses their net salary under a PCH agreement, with the added benefit of potential VAT savings because the employer actually leases the car.

In addition, our no initial rental arrangements mean there are no upfront costs nor any credit checks for the employee. While BiK tax will apply, the overall impact is nominal compared to the overall savings the employee can make. For more information, use the employee guide to compare EV examples or speak to the expert e-car lease team who can provide dedicated quotations based on the specific tax circumstances.

As part of our salary sacrifice scheme, the employee will receive a brand-new EV including the cost of all road fund licence (VED), servicing and maintenance, tyre provisions and roadside assistance. The scheme does not include motor insurance, early termination insurance, charge points or an integrated energy solution.

Our e-car lease team can assist by introducing you to a select number of companies who can provide cost effective solutions in conjunction with the e-car lease services, but with regard to insurance where possible we would recommend adding the participants to your existing fleet insurance policy, as these tend to offer more cost effective premiums than schemes offering integrated insurance. And by including motor insurance it offers the opportunity to boost the tax savings for the employee.

For an employer, there are some key facets which must be considered before creating a scheme. As each lease agreement will be between the employer and the selected finance company, the employer is fundamentally (and legally) responsible for the EV and any payments and/or charges. If the vehicle needs to be returned, then an Early Termination fee will apply – typically this is a sum equivalent to 50% of the remaining rentals. However, in some cases finance companies can offer a more favourable proposition.

At contract cessation, the EV must be returned to the finance company as there is generally no provision for an extension or vehicle purchase, and if the EV incurs excess mileage (mileage beyond the agreed contract maximum) or is damaged beyond what is considered fair wear and tear, then charges will apply. During the contract, if the employee commits parking or driving offences, then administration fees will apply (charged to the employer by the select finance company).

Finally, any items which are not covered under the vehicle warranty or the funder-maintenance package, like loss of keys or interim AdBlue / coolant refills, are the responsibility of the employer or employee.

All of these risks can be mitigated by efficient fleet management practices and robust agreements between the employer and the employee, and of course the employer NIC savings should cover the vast majority, if not all, of the early termination costs likely to be incurred during the operation of the scheme.

For an employee who would otherwise lease an EV personally, a salary sacrifice scheme can offer considerable savings. The extent of the saving will depend on the employee’s individual tax position, but many employees can expect to save around 30 – 60% on a new EV in comparison to a like-for-like PCH agreement. It is also worth noting that EVs often allow for Whole of Life cost savings as they are generally cheaper to fuel, maintain and operate compared to a combustion vehicle.

With more Congestion Zones and Clean Air Zones being established throughout towns and cities in the UK, there are further savings potentially available when comparing electric v combustion. The e-car lease scheme does not allow the employee to purchase the EV at the contract end as we offer a usership product. Our team cannot provide a Lease Purchase, Hire Purchase or Finance Lease arrangement for salary sacrifice.

As the UK’s leading electric car experts, we are now extending our amazing, and unique, electric car suitability and assessment tools beyond Personal Contract Hire (PCH) and Business Contract Hire (BCH) customers. This means that both the employer and employee are not only guaranteed the best deal on their new EV, but it also ensures that the correct solution is utilised every time. A key part of our service is minimising the impact on employers who want their employees to embrace the electrification transition.

To help employers and employees achieve the right solution, we have produced easy to use employee guide and employer guide which you can each download and review. We suggest that you consider the e-car lease salary sacrifice scheme in-depth and read our guide to What You Could Save before speaking to our expert team.

With moves towards decarbonisation and sustainability, zero-emission cars are now a key part of the UK’s transport and environmental strategy. Moving towards 2035, all new vehicles will have to be purely electric.