Salary Sacrifice - what is it and how does it work?

What is Salary Sacrifice it and how does it work?

With the Autumn Statement for 2023 just released, many of us in the automotive industry, particularly the green sector, were eagerly awaiting the news with the hope that the Government would support the EV transition with more rigour.

And we were not particularly disappointed with the statement confirming “the government will look to remove unnecessary planning constraints by accelerating the expansion of electric vehicle (EV) charging infrastructure and will consult on amending the National Planning Policy Framework to ensure the planning system prioritises the rollout of EV chargepoints, including EV charging hubs” and “ensure that the planning system prioritises the rollout of electric vehicle charging infrastructure, including EV charging hubs.”

Additionally, there has been confirmation that further boosts for industry will follow, with around £2 billion in loans and grants earmarked for the zero-emission automotive sector.

Providing confidence for international investment, whether this be manufacturers of vehicles or batteries, is crucial to growing the UK’s electric vehicle sector. And to recognise that public infrastructure needs more support is also particularly welcoming, as confidence by the actual driver is crucial to our network.

But no physical loans or incentives will be introduced as part of the budget, with some dealerships and automotive procurement hoping that more proactive financial measures could be brought in to ignite sales. However, the current provision for “full expensing” will remain in place for business, which means that for every £1 invested into machinery and equipment (including vans), 25 pence is returned via way of Corporation Tax savings.

Cars, assets for leasing and 2nd hand assets are excluded from the 100% first-year allowances but the Government is in talks with our Ombudsman, the BVRLA, about enhancements for leasing and EVs.

But how does this affect electric car customers?

In the UK, there are three key types of funding/customers which are likely to engage with our e-car team - personal contract hire (PCH), business contract hire (BCH) and salary sacrifice (Sal Sac).

With PCH, consumers / retail customers are using their own money to use (lease) an EV for a predetermined time and this is essentially a direct alternative to a purchase style approach, like a PCP or HP. With BCH, or fleet, this covers the situation of a company car and this essentially means that your employer is providing a car to an employee (plus the maintenance and insurance) without any financial contribution.

Apart from company car tax, which is calculated via Benefit in Kind (BiK), there is no cost or contribution required from the employee. In essence, this is a “free” benefit. While not a new funding method, the more recently popular Salary Sacrifice product, has really come to the attention of employers (and employees) in the UK.

What is Salary Sacrifice on an EV?

In a nutshell, this is a formal agreement between the employer and employee, which confirms that the employee will give-up (or sacrifice) a portion of their salary in return for a non-cash benefit. So for an electric vehicle, the employer will agree to organise the lease of the EV with a finance company and this will generally include the vehicle, service and maintenance, tyres, early return assurance / insurance, a charge point and, in some cases, motor insurance.

The cost for this arrangement is deducted from the employee’s gross salary i.e. before Income Tax and National Insurance Contributions. But, as the employee is afforded a benefit from the company, this is subject to the BiK noted above.

This means that company car tax is applied to the agreement, in addition to the salary reduction. Before the order of any vehicle, a series of formalities must be carried out to ensure that the employer and employee understand their obligations; this does necessitate a change of the contract of employment.

How does Salary Sacrifice actually work on an EV?

As noted above, there is a formal process which must be undertaken. In general, a leasing broker (like e-car) will speak to the HR or director at the employer to ensure the undertaking is completely understood. While sal sac helps the employer with staff retention, satisfaction and is cost-neutral, there is a formal credit process and contract between the employer and finance company; ultimately the employee is responsible for the car.

Our team will carry out basic due diligence to ensure the scheme is suitable, not just as a procurement method but for the electric vehicles themselves. As the UK’s leading and most trusted EV specialist, our unique tools and guidance ensures that you are actually getting the right car for range, charging speeds, charging times and so forth. With our EVC™ you will receive a robust synopsis of the proposed vehicle.

To be clear, because the beneficial BiK only applies to zero-emission cars, this is all we will offer on our scheme. We cannot provide combustion solutions.

So is Salry Sacrifice cheaper than a personal lease?

The big question for those employees who are invited into the salary sacrifice scheme, is whether or not this represents good value compared to a PCH or PCP agreement.

In terms of pure electric vehicles (which is the only solution we offer), utilising your gross salary to procure the EV is often much cheaper, especially for those employees with higher rate (40%) and additional rate (45%) income tax brackets. In short, if you were in the 40% tax bracket and you were paying for a PCH/PCP at £600, this would necessitate £1000 of your gross salary, as £400 would be deducted for tax.

In contrast, a sal sac utilises your gross salary and the amount of money deducted for the vehicle (and other facets) is applied before tax is calculated. For many customers, this is offering an immediate 40-45% saving on a like for like car. And because this is a salary reduction, the employee makes NIC savings too.

There are other benefits also, in that for VAT registered business some 50% of the Vat can be deducted from the finance rental and 100% of the Vat on the maintenance aspect. Plus salary sacrifice terms for businesses are often more beneficial than a customer walking into the dealership and purchasing just one. 

Do e-car not include insurance with their sal sac scheme?

At present, we do not. And this is something which needs highlighting to employer and employee. As we do not sell or supply motor insurance, we can only make a formal introduction to Churchill Expert - who will be able to offer a fleet policy. The employer can use the quotation provided to allocate a monthly cost to their employee and this can be sacrificed from their salary. For more information, just use the enquiry form.

For more information on salary sacrifice for an employer, employee or what you can save just head to our dedicated section.....

Browse our Salary Sacrifice Info

And one of most popular EVs, which was delivered to our salary sacrifice customer, the Tesla Model Y Hatchback Long Range AWD 5dr Auto, is pictured here. This is based on:

• White - Multi coat paint
•  Premium open pore wood decor
•  Premium engineered material - Black seat
•  Type 2 charging cable  

How does the SUV Tesla perform?

This AWD Fastback will have a 75 kWh usable battery which will offer 0 – 62 times of 5.0 seconds, 135 mph top speeds and 378 kW (or 507hp). Expect a combined winter range of 225 miles with warmer weather allowing for 310 miles.

On charging, the 11 kW AC max will allow 8 hour 0 – 100% charging times with the 250 kW DC maximum allowing 27 minute 10 – 80% times. A cargo volume of 854L is available with this car. It has a vehicle fuel equivalent of 146 mpg. This EV will have no Bidirectional charging. This vehicle can tow 750kg (unbraked) and 1600kg (braked).