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Company carsLatest NewsSalary Sacrifice

How salary sacrifice electric cars can help staff lower costs

by Andrew Leech 20 Oct 2022
by Andrew Leech 20 Oct 2022 Photo: Shutterstock
Photo: Shutterstock

Salary sacrifice electric vehicles can help staff tackle the cost of living crisis. But salary sacrifice schemes for electric cars are still a well-kept secret, says Andrew Leech, founder of Fleet Evolution, that more HR managers need to be aware of.

Electric vehicles provided through a salary sacrifice scheme can help employees not only cut their costs of mobility but overcome wellbeing issues surrounding the cost of living crisis at the same time.

For businesses and staff who want to keep mobility costs under control at a time of rapidly spiralling costs, a salary sacrifice car scheme can provide even relatively low paid staff with a highly cost- and tax-efficient electric vehicle.

Such a scheme can also help employees tackle the anxiety and emotional stress caused by the prospect of living costs spiralling out of control and help contribute positively to their wellbeing in the current turbulent economic climate.

However, at the same time, there is a surprisingly low number of HR managers who know about salary sacrifice schemes for electric cars and the benefits they can deliver for employers and employees alike.

Two surveys of 300 HR managers we carried out at consecutive CIPD shows found that just 15% of those questioned knew what a salary sacrifice car scheme was and understood the benefits it could bring for employers and employees if electric cars were involved.

This is at a time when demand for electric cars has been growing steadily for the last 18-24 months and is now at record levels. September saw Britain’s millionth electric car registered and the second highest monthly volume of battery electric vehicle (BEV) registrations in history, up 16.5% to 38,116 units.

That means that one in five new cars joining UK roads in September were electric, a fact that reinforces the results from a survey we carried out in conjunction with Aston University earlier this year which showed that 30% of respondents said their next car would be electric.

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EV salary sacrifice car schemes

However, there is a misconception that salary sacrifice car schemes are for the more highly paid employees who are paying tax at 40%. But in reality, the ones they really benefit are ones at the lower end of the pay scale paying tax at 20%, as you cannot allow a salary sacrifice to take net pay below the minimum living wage.

Under a salary sacrifice scheme, the savings in tax and national insurance on new cars are significant, but many new cars on the Fleet Evolution scheme even work out better value than keeping on older diesel or petrol car on the drive.

To demonstrate this, we looked at figures from the government car cost calculator website for an average family sized car, like a five-year-old Vauxhall Astra 1.4T 16v 150bp SRi 5d. This has total annual running costs over a typical 10,000 miles of £8,070 a year or around £675 a month, including depreciation, fuel, SMR (service, maintenance, repair) and insurance.

However, by having a comparable electric car under a company-provided salary sacrifice scheme, such as a brand new, all-electric MG4 range, which has a range of 227 miles, a 20% taxpayer would pay just £350 per month net for the car, insurance, SMR, breakdown cover, tyres and leaver protection, making the new electric car far most cost-efficient for lower-paid employees.

Electricity, meanwhile would cost around £50 a month, so the salary sacrifice car not only saves a significant proportion of employees’ monthly take-home salary, but it helps ease their anxiety and emotional stress caused by the spiralling living costs. At the same time, they will also be making a major contribution to reducing their company’s carbon footprint.

For employers, from an ethical viewpoint, going down an EV salary sacrifice route shows them in a positive light in trying to help their employees manage their living costs at a time of price rises across the board.

So why is a salary sacrifice electric car scheme such good value? Three main reasons: the first is the ever-widening range of new electric cars that are coming onto the market which are helping increase choice and drive down front-end costs.

The second is that benefit-in-kind tax rates for electric cars are at an historic low. The rate for the current tax year, 2022/23, and for the next two is just 2%. This compares with, say, 25%, for a petrol car emitting 100gm/k of CO2, rising to a top rate of 37%.

The third is the fuel cost involved for a petrol or diesel car compared with an electric one. With pump prices at near record levels, and predictions of £2 litre down to cuts in production it is proving increasingly expensive to run a conventional vehicle. An electric car, if charged at home typically costs 10p per mile to run – even at the higher rates charged by utilities from October.

Latest studies show there are around 40% of households without a driveway, parking space or garage for charging purposes, while data from chargepoint app, Zap-Map, shows that the percentage of on-street households within five minutes’ walk of a public charger is around 17%.

However, there are now nearly 5,000 free-to-use charge points across the UK at places like supermarkets and cinemas, so the charging picture is definitely an improving one.

Fleet Evolution seeks to help its customers in this respect by offering a free chargepoint for every five vehicles they have with us, so that employees can charge their vehicles while at the office.

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A typical trip to the office, for say two days a week, can provide more than enough charge for the weekly commute and remove much of the associated range anxiety. In these turbulent times, employees need all the help they can get.

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Andrew Leech

Andrew Leech is MD and founder of EV salary sacrifice and fleet management specialist, Fleet Evolution

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