EV salary sacrifice: the second hand option

The growing market in second hand electric cars is making employers’ salary sacrifice schemes even more attractive in the run up to the 2030 petrol and diesel cut off, writes Thom Groot

The new UK government has pledged to reintroduce the 2030 ban on new petrol and diesel vehicles, leaving businesses increasingly exploring how they can transition to electric cars.

Employees increasingly expect their employers to help them make sustainable choices, and businesses are more than ever working hard to reduce their scope three emissions – for example, the emissions their employees produce driving to work.

Over the past few years, it has been proven that the most affordable solution is salary sacrifice.

These schemes offer employees the chance to save between 30% and 60% on electric vehicles by paying for them through a pre-tax salary arrangement.

But how exactly do they work, and why are they becoming so popular?

Salary sacrifice is relatively straightforward. An employee agrees to give up a portion of their gross salary in exchange for leasing an electric vehicle through their employer. Since the payments are made from pre-tax income, the employee’s taxable income is reduced, which means they pay less income tax and national insurance contributions.

The amount of money saved depends on the employee’s income tax bracket, meaning high erearners typically see greater savings. In practical terms, this means savings of up to 60% on the cost of their electric car. This makes salary sacrifice particularly appealing to employees looking to drive a more environmentally friendly vehicle at an affordable cost.

The price of an electric car is key, given that research from The Electric Car Scheme’s Affording Sustainability report shows that affordability is the biggest barrier to getting an EV for 68% of people in the UK.

Other concerns still exist, but pale in comparison to the upfront or monthly cost.

Another key factor driving the success of salary sacrifice is the low benefit-in-kind (BIK) tax rate applied to electric vehicles. BIK is a tax paid on non-cash benefits received through employment, such as company cars. For electric cars, the BIK rate is currently just 2%. This low rate keeps the cost of leasing an electric vehicle through salary sacrifice highly competitive.

What makes the arrangement even more attractive is that the UK government has committed to maintaining low BIK rates until at least 2028. Furthermore, with the 2030 ban on new petrol and diesel cars looming, experts predict that BIK rates on electric cars will remain low until at least 2035 to encourage the widespread adoption of EVs.

For employees looking for a long-term solution, this offers peace of mind that they can continue to benefit from significant savings well into the future.

One of the key evolutions in the scheme has happened recently, and it is changing the game, or at least the maths. Traditionally, salary sacrifice schemes were limited to new electric vehicles, but now, The Electric Car Scheme, among others, offers the option to lease second-hand electric cars, providing even greater savings. By choosing a second-hand EV, employees can reduce costs by an additional 20% to 50%, compared with leasing a new car.

This means that total savings could range from 30% to as much as 75% when opting for a second-hand vehicle.

As shown, opting for a second-hand car significantly increases the savings. This is not only a boon to those looking to access any kind of EV but also a significant step in widening access to the scheme itself. It means that it can be accessed by even junior employees or those on lower salaries, for whom it previously would not have been possible.

It has gone from a benefit predominantly for the company’s higher earners to one that truly appeals to everyone.

One concern employees – and HR managers – may have when considering a salary sacrifice scheme is the financial risk. If their circumstances change – such as a job loss or redundancy – what happens to the lease?

Fortunately, The Electric Car Scheme (a BCorp certified business), like many other schemes offers complete risk protection. If an employee’s employment situation changes unexpectedly, they are not left burdened with unmanageable lease payments. This safety net ensures that everyone can enter the scheme with confidence, knowing they are protected from unforeseen changes in their financial situation.

Electric car schemes are seeing incredibly strong employer interest, with an estimated 83% of employers looking to launch a scheme in 2024 or 2025. Among the thousands of businesses that already offer a scheme, increased awareness and urgency is making the scheme more and more attractive to employees, with a greater proportion taking advantage of the generous benefit.

With the 2030 deadline fast approaching, the next few years looks to be the time to take advantage of the savings and benefits that salary sacrifice offers. 2025 is likely to be the year where it goes from a nice-to-have perk to something that every business must have in order to be competitive.

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