The advent of salary sacrifice schemes is playing an ever greater role in the green agenda. As the UK moves toward net zero, Thom Groot charts their development and how employers can gain from them
Salary sacrifice schemes have long been a popular tool for employees and employers alike, offering a tax-efficient way for individuals to access goods and services while enabling businesses to enhance their employee benefits packages. Over the past five years, these schemes have undergone significant evolution, particularly in areas like electric vehicles (EVs).
This transformation reflects a growing commitment to sustainability and equity, as well as the role these schemes can play in driving broader societal change.
The past: growth and early adoption
Initially, salary sacrifice schemes were mostly used for traditional benefits like pension contributions, childcare vouchers, and cycle-to-work initiatives.
It is perhaps the cycle-to-work scheme that best exemplified the savings that could be made for immediate improvements to quality of life and the potential to help supply upgraded transport options. The government’s intention in introducing this was very clear: make our commutes greener, and encourage people to exercise more to benefit their health and the NHS. In addition, these became a desirable benefit and for any cyclist looking to upgrade their hardware or a novice looking to add exercise into their commute, it was quickly a no-brainer.
These schemes let employees exchange gross salary for non-cash perks, reducing tax and national insurance liabilities. While pensions offered long-term benefits, newer options, such as EV schemes, provided immediate value.
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With the rise of electric vehicles, employers embraced the dual benefit of reducing carbon footprints while offering valuable perks. Government incentives, such as reduced benefit-in-kind (BIK) rates, made EV schemes highly attractive, saving employees up to 50% on monthly car costs.
As a result, salary sacrifice has become the driving force behind the mainstream adoption of electric vehicles, enabling employees to access EVs at affordable monthly rates.
EV salary sacrifice drove mainstream adoption, offering affordable rates and fostering employee retention through three-to-four-year leases, strengthening the bond between employees and employers.
The present: increased accessibility and expanding horizons
One of the most significant changes in salary sacrifice schemes for EVs this year has been their increased accessibility. Traditionally, these schemes were better suited to higher earners, who could maximise tax savings. However, recent developments have made them more inclusive.
The introduction of second-hand EVs into salary sacrifice schemes is a game-changer. This move has significantly lowered the price point for everyone – lowering the monthly cost of an EV by 40% to 50% typically. This has increased take-up for those on lower salaries, democratising access to electric vehicles.
Employees who may not have been able to afford a brand-new EV can now opt for a pre-owned model, benefiting from lower monthly deductions and the same tax advantages. The inclusion of used EVs also aligns with broader environmental goals by extending the lifecycle of these vehicles and reducing waste.
Additionally, innovative offerings like the Charge Scheme have enhanced accessibility further.
By integrating home, public, and office charging into salary sacrifice plans, employees can save 20-50% on charging costs. These options, available at no extra cost to employers, empower more people to adopt EVs while easing financial pressures.
The rising cost of living has also prompted many employers to diversify the products available through these schemes, recognising the value of offering tangible financial relief. Items like home office equipment, gym memberships, and even wellness services have become more common, further broadening the appeal of salary sacrifice.
The future: salary sacrifice as a tool for sustainability
Looking ahead, salary sacrifice schemes are poised to play a central role in promoting sustainable living. Solar panels, heat pumps, and other renewable energy technologies are already on the horizon, and their inclusion in such schemes could have a transformative impact.
Solar panels
Solar panels represent an ideal product for salary sacrifice schemes. They align with sustainability goals, offer long-term financial benefits to users, and contribute to energy independence. The upfront cost of solar panel installation has traditionally been a barrier for many households, but salary sacrifice could make this technology accessible to a much broader demographic. Employees could pay for solar panels through manageable monthly deductions from their pre-tax salary, effectively reducing the financial burden.
The potential for this expansion is enormous. By enabling more households to install solar panels, salary sacrifice schemes could accelerate the shift toward renewable energy, reduce reliance on fossil fuels, and help the UK achieve its net-zero targets. However, for this vision to become a reality, government support will be crucial.
The role of government incentives
Government incentives have been a driving force behind the success of salary sacrifice schemes, particularly in the EV market. Low BIK rates and grants for EV infrastructure have made these schemes viable for employers and attractive for employees. A similar approach will be necessary to expand salary sacrifice to products like solar panels and heat pumps, which in turn should increase the take-up of these crucial elements to ensure our homes become carbon neutral by 2050.
Without incentives such as salary sacrifice, the upfront costs are likely to remain prohibitive.
Unlocking the potential of salary sacrifice
The evolution of salary sacrifice schemes over the past five years highlights their adaptability and potential as a force for good. From their initial focus on traditional benefits to their role in driving EV adoption and their future potential in decarbonising homes, these schemes showcase the power of public-private collaboration in tackling societal challenges.
At the core is a cost-effective way to offer non-cash benefits employees care about, making them more likely to stay with your company longer.
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