Blog
The advantages of electric vehicle salary sacrifice schemes
18 Feb

Businesses looking to reward and retain staff members may wish to consider offering an electric vehicle (EV) salary sacrifice scheme.
Not only are many EVs better for the environment, but they could also offer businesses considerable savings.
Businesses can use employee salary sacrifice – similar to schemes offered for pension contributions, cycle to work schemes and childcare vouchers – to fund the purchase of new EVs in a tax-efficient manner.
In principle, salary sacrifice is simple, the employee ‘sacrifices’ part of their salary and the employer invests this in a benefit – in this case, an EV. Using salary sacrifice saves the employee National Insurance Contributions (NICs) and Income Tax.
However, in recent years HM Revenue & Customs (HMRC) has taken a tougher approach to many salary sacrifice schemes, which has often made them less effective.
Thankfully, a special exemption was put in place for ultra-low emission vehicles to encourage motorists to swap their petrol and diesel cars for electric and hybrid models.
When this was confirmed it was made clear that the provision of an EV via salary sacrifice would be considered a benefit-in-kind.
Initially, the benefit-in-kind, or BiK rate, on a pure electric car was 16 per cent, which in many cases meant that there was little or no benefit.
However, following changes in April last year, all pure electric cars now have a zero BiK rate and salary sacrifice benefits can be felt in full.
The zero per cent rate also applies to hybrid vehicles that are first registered from 6 April 2020 that produce between one and 50g/km of CO2 and are capable of at least 130 miles on battery power alone.
The change in rates coincided with more complex rules regarding emission and economy tests, which determine rates for vehicles including hybrids, which may have an impact on existing hybrids acquired via salary sacrifice.
The Treasury has recognised that the older tests may unfairly disadvantage some company hybrid car users and so to achieve fairness it has reduced the BiK rates used for older car models.
This reduction will fall to one per cent in the 2021/22 financial year and will disappear altogether in the following year. This means that there will be no reduction in its BiK rate for these vehicles from April 2022.
People looking to purchase a new company car in the next year should review the Government’s latest rates, which can be found here. Be aware though that these rates change annually and may differ after April 2021.
There are several other tax incentives for both company car users and the businesses that offer this benefit, especially where it is used for business purposes, including:
- Corporation Tax relief
- Reclaiming VAT on a vehicle purchase
- Lower vehicle excise duty
- Plug-in grants
- Tax-efficient electric car charging points
It is not surprising, as technology advances, that more businesses are considering EV salary sacrifice or the purchasing of a fully electric or hybrid fleet.
Beyond the immediate tax benefits for a company, the employer should also look at the advantages that offering a company car can have on retaining staff.
Offering EV salary sacrifice is an excellent way of rewarding employees in a tax-efficient manner that doesn’t incur significant costs for the business or the employee.
Looking further ahead, the Government is now committed to a ban on the sale of new purely petrol and diesel vehicles by 2030, which is now less than a decade away.
Link: Electric Car Tax Benefits
Archive
- Budget 2021
- Self-Assessment late payment penalties relaxed but interest still accrues
- Business insurance rates are on the rise
- The advantages of electric vehicle salary sacrifice schemes
- Consultations on future of Companies House could see filing deadlines slashed
- Voluntary and compulsory strike-off processes paused in response to national lockdown
- Don’t forget to claim home working tax relief
- Large and medium-sized businesses need to be ready for IR35
- The VAT Reverse Charge for the Construction Industry Scheme – Are you ready?
- Basic rate taxpayers could face ‘high income’ child benefit charge
- The VAT Deferral New Payment Scheme
- COVID-19 Bounce Back Loan repayment period extended
- Calculating Coronavirus Job Retention Scheme claims for annually paid directors
- HM Revenue & Customs waives late filing penalties for Self-Assessment taxpayers who file by 28 February – but payment deadline remains
- Requests for exemption from publication of furlough claims must be submitted by Monday 25 January
- Only a few days are left to submit applications for the third SEISS grant
- What could Budget 2021 have in store?
- HM Revenue & Customs increases the threshold for Self-Assessment online payment plan service to £30,000
- Independent commission argues against annual wealth tax but advocates a one-off charge
- Could the Government be about to launch a new permanent state-backed small business loan scheme?
- HMRC issues new warning over lockdown fraudsters
- FSB proposes move to turn Covid emergency debt into shared ownership schemes
- VAT – Post-Brexit arrangements
- Insurance industry to pay out on COVID-19 business interruption claims
- Are you making full use of the Government’s COVID-19 financial support package?
- Government extends agricultural visa scheme to fill jobs left by EU workers
- Brexit: UK Trader Scheme to support movement of goods between Britain and Northern Ireland
- Coronavirus furlough and loan schemes further extended
- Brexit trade deal negotiations continue as businesses warned to prepare for a ‘no deal’ scenario
- VAT under the Northern Ireland Protocol
- Northern Ireland customs duty arrangements confirmed
- Government launches new export finance guarantee scheme
- How can your business prepare for customs and VAT after Brexit?
- UK launches points-based post-Brexit immigration system
- Business Secretary writes to professional services sector ahead of end of Brexit transition period
- HMRC updates Statutory Residence Test due to COVID-19
- Scammers are targeting Self-Assessment taxpayers, says HMRC
- Eat Out to Help Out compliance checks underway
- Businesses face legal action over unpaid business rates
- HMRC publishes consultation on MTD for Corporation Tax
- HM Revenue & Customs issues Capital Gains Tax reminder
- Virtual Christmas parties eligible for £150 annual function exemption
- Grandparents set to increase gifting following pandemic and families set to inherit more than expected
- Access to European Union VAT refund system to end on 31 March 2021, HMRC confirms
- Brexit: How to claim grant funding to help cover the costs of completing new customs declarations
- Companies House to scrap paper reminder letters
- Third round of Self-Employment Income Support Scheme (SEISS) opens on Monday with tighter eligibility criteria
- Important deadlines approach for the furlough scheme
- Spending Review highlights long-term economic impact of Coronavirus pandemic
- The New COVID-19 Tier System
- VAT after the Brexit transition
- IFS predicts tax rises of more than £40 billion a year by the middle of the decade
- More than 50,000 people claim working from home tax relief through HM Revenue & Customs online portal
- HMRC called on to simplify the administration of tax reliefs
- A quarter of businesses don’t think they will be ready for post-Brexit Britain
- HMRC warns taxpayers still aren’t ready for Making Tax Digita
- Homebuyers need to start purchases this month to take advantage of Stamp Duty savings
- Daily penalties waived for Self-Assessment late filing
- Furlough scheme update – Publication of claims and employees serving notice
- Extended Coronavirus Job Retention Scheme FAQ
- Government extends furlough scheme and provides a boost to SEISS
- Government extends further help to businesses and the self-employed during national lockdown
- National Lockdown – Extension to the Coronavirus Job Retention Scheme and Business Support Update
- Government extends further support to businesses affected by COVID-19
- HM Revenue & Customs publishes further details of the Job Support Scheme
- Annual Investment Allowance – Time is running out
- Accounting for mobile phone use
- Time to prepare (once again) for the VAT reverse charge
- Is the Government considering a National Living Wage freeze?
- Companies House reforms to combat fraud and assist businesses
- Price of plastic bags in England to double to 10p
- New Coronavirus regulations place self-isolation obligations on employers
- Latest SEISS grants introduce new qualifying conditions
- Businesses may be entitled to insurance pay-out after important judgment
- Chancellor expands Job Support Scheme and grants to businesses facing new COVID-19 restrictions
- Government issues new guidance on the Job Retention Bonus
- Download the Government’s guide to the Job Support Scheme
- Important message to clients and friends: We are working remotely on recommendation from the PM, please read the following update
- Chancellor announces new Job Support Scheme and package of business support measures
- Change to Companies House bank detailsanies House bank details
- More than £1 billion in tax reliefs for creative industry
- Advisory Fuel Rates for next quarter come into effect
- Key dates for the Coronavirus Job Retention Scheme
- The first Child Trust Funds (CTFs) can now be claimed
- Four in five SMEs are confident over their Coronavirus recovery
- HM Revenue & Customs (HMRC) writes to 3,000 employers over furlough claims
- Government to launch new local lockdown grants
- CBILS ends on 30th September 2020
- How will you rebuild and recover? Funding launched to cover cost of professional advice
- Tax changes outlined in draft Finance Bill 2020 – 2021
- Coronavirus Business Interruption Loan Scheme expanded to more businesses
- VAT treatment of imported goods up to £135 to change under new rules
- HM Revenue & Customs publishes Job Retention Bonus guidance
- Small business Covid recovery boosted by £20million in new grants
- HM Revenue & Customs sets out Making Tax Digital plans for VAT and Income Tax
- HM Revenue & Customs sets out details of penalties for breaches of furlough and self-employment scheme rules
- Reminder: VAT payment deferral period has ended
- Banks list top 10 Coronavirus scams
- HM Revenue & Customs issues ‘nudge’ letters to people suspected of having undeclared overseas assets
- Second round of Self-Employment Income Support Scheme (SEISS) opens on Monday