Our shift to vehicles with lower carbon exhaust emissions is accelerating.
March 2021 data from the Society of Motor Manufacturers and Traders (SMMT) show sales of battery electric cars and plug-in hybrids accounted for a total of 13.9% of the market, up from 7.3% a year earlier.
What does this growing trend mean for businesses and their car salary sacrifice schemes?
These once-popular initiatives may not be quite as lucrative for employers as they once were, but remain a great incentive.
Since 2017, an employee has had to pay income tax on either the value of the car or the amount of their salary they sacrifice.
However, in 2019, the government announced that benefit in kind (BIK) rates for company cars would be lowered from April 2020. For many vehicles registered after 6 April, 2020, tax rates have been reduced by 2%, with zero-emission models tax-free in 2020-21, only rising 1% each year until 2023.
And this means businesses and employees could save money choosing lower emission vehicles while reducing their carbon footprint. In fact, adopting a green car scheme means a brand new, fully maintained and insured car for your employees, as well as significant National Insurance (NI) savings for employers.
It’s common for businesses to be able to access cars for a lower price than consumers on the forecourt. This means employees can lease a car from their employer for less than they could going to the dealer direct.
Unlike typical financing packages too, staff probably wouldn’t be asked to pay a deposit. And because these schemes usually cover the likes of insurance, breakdown and servicing, they take the hassle out of car ownership. There’s also no need for the drivers to worry about depreciation.
To illustrate, vehicle leasing company Tusker says the monthly net cost to an employee for an electric mini in 2020 was £219. This is based on the person being a 40% taxpayer on a 48-month deal driving 5,000 miles a year. That’s compared with around £300 online which also doesn’t account for a deposit, insurance, servicing and maintenance.
Your employees can choose the make, model and specification and — if they leave — they simply hand the car back after the initial exclusion period, which is normally three months. Government funding is also available for installing charging points at home.
Businesses make NI savings when employees choose ultra-low emission vehicles (ULEVs).
Tusker says many electric vehicles (EVs) now generate around £3,000 in National Insurance savings per car over a typical three-year term, adding that — based on average savings across EVs — fewer than 50 EVs mean a reduction of around £100,000 in NI contributions.
Aside from the benefits of actively promoting lower CO2 emission cars too, schemes of this kind also underpin an employer’s duty of care: giving your people access to safer, reliable and affordable cars insured for business use.
Plus, these initiatives might well attract employees in the first place and because the member of staff takes out a car contract through their employment, they are perhaps less inclined to move jobs than they otherwise would have been.
Last but not least, the government’s Workplace Charging Scheme (WCS) means businesses can potentially access funds to help pay to buy and install electric vehicle charge-points on-site.
There’s no doubt car salary sacrifice schemes, specifically those focused on lower emission vehicles, have the potential to save both employee and employer money. Above and beyond that though, there are many other benefits that make this a worthwhile option for all concerned.