Salary sacrifice electric cars: significant cost savings available for employer and employee
Is your organisation looking to attract and retain employees and obtain cost savings at the same time? Providing a brand-new electric car under a salary sacrifice arrangement for your people is an extremely effective way to achieve this.
A salary sacrifice specialist at Moore Kingston Smith will help your organisation implement an electric car salary sacrifice scheme.
What are the benefits?
A salary sacrifice arrangement provides your employees with a low-cost motoring option compared with personal car leasing. As the employer, the arrangement can be cost-free for your organisation. This is achieved by your organisation saving employer national insurance contributions and apprenticeship levy (if applicable). VAT may also be recovered from parts of the car package.
The main benefits for the employee are as follows:
- The electric car is for the employee’s personal use, with no requirement for any business mileage.
- There are tax and national insurance contribution savings for the employee. This typically generates employee savings of 20-30% compared with personal car leasing.
- Opting for an electric car will also help the employee reduce their carbon footprint compared with petrol and diesel alternatives, thus contributing to your organisation’s ESG agenda.
Savings will increase even further from 6 April 2022 onwards, due to the increase in national insurance contribution rates by 1.25% for both employer and employee, turning into the health and social care levy from 6 April 2023 onwards.
How does it work?
1. Your organisation acquires a vehicle, typically under a lease arrangement with a third party.
2. The employee agrees to sacrifice (i.e. give up) salary equivalent to the lease cost, thus offsetting the cost your organisation has incurred. Salary sacrifice is a contractual arrangement whereby an employee gives up the right to receive part of their cash remuneration, usually in return for their employer’s agreement to provide some form of non-cash benefit – in this case, a company electric car.
3. The salary is given up before PAYE and national insurance contributions. This generates large savings for both you and employee.
4. The employee is subject to benefit-in-kind tax on the provision of a company car. However, the tax on an electric car as a benefit in kind is very low (1% of list price for 2021/22 and 2% from April 2022 – March 2025).
5. The car is typically maintained by a third party chosen by your organisation – usually the lease provider.
HMRC’s view
The government is committed to lowering emissions as part of their net zero strategy. This is reflected in HMRC retaining the tax and national insurance contribution benefits for cars with CO2 emissions of 75g/km and below provided under a salary sacrifice arrangement and continued low benefit-in-kind tax charges for company-provided electric cars.
Moore Kingston Smith’s solution
We have created a salary sacrifice electric car solution to help your organisation implement a salary sacrifice arrangement acceptable to HMRC. This includes:
1. Guiding you through how salary sacrifice works. This can be in the form of a bespoke written document and/or presentation for the employee as well as employer.
2. Helping you implement the arrangement by ensuring the salary sacrifice is set up in a contractual arrangement that will be acceptable to HMRC.
3. Reviewing lease providers’ documentation to ensure it is HMRC-compliant, and reviewing tax and NIC savings for the car selected by an employee.
4. Advising on payroll reporting implications, including voluntary payrolling of benefits.
5. Assisting with HMRC expense and benefit reporting (e.g. form P11D).
6. Advising on other tax efficient electric car-related benefits, such as electric car charging and tax-free loans so your employees can install solar energy systems at home.
If you would like to discuss your current situation and hear more about how we can help, please visit our business and corporate tax page or contact the team below.