EV company car

Electric vehicles on salary sacrifice explained


Tusker is the leading car benefit provider in the UK with a fleet of over 20,000 cars, the majority of which are provided on Salary Sacrifice. Ali Argall, Tusker’s Business Development Director, explains why an electric vehicle or plug-in hybrid could be the best option for you via the scheme:

What is the salary sacrifice scheme?

Salary Sacrifice is an affordable way for employees to drive a new electric vehicle or plug-in hybrid with insurance, MOT, servicing, breakdown cover, road fund licence, replacement tyres and routine maintenance all included. It provides employees with a hassle-free car package.

The schemes are essentially a business contract hire scheme for individuals, where the costs and responsibilities are passed on to the employee through the Salary Sacrifice agreement and the Scheme Policy between the organisation and employee.

How does salary sacrifice work?

The schemes aim to put the majority of EVs into the reach of everyday drivers at the same time as helping reduce costs for user choosers and improving safety for grey fleet drivers.

The employee agrees to a reduction in their gross salary in return for a non-cash benefit, in this case a company car and the associated services within the scheme. For zero-emission vehicles, this can result in substantial savings as Benefit in Kind is currently only 1% of the P11d value of the car, multiplied by the employee’s tax rate. The scheme is easy to implement and administer and Tusker mitigates risks for the organisation and its employees.

Are there restrictions on which employees can have a car under salary sacrifice?

There are no restrictions on which employees can benefit from salary sacrifice, in fact HMRC is keen for all employees to have access to Ultra Low Emission Vehicles, providing they earn over the National Living Wage once reductions have been made. There are however age restrictions on certain cars based on motor insurance cover. Tusker works with employers to ensure employees only have access to the cars they can afford and are legally entitled to drive.

Ali Argall, Tusker Business Development Director

Can I have an electric vehicle or plug-in hybrid on salary sacrifice?

Definitely, electric vehicles have gone from 3 per cent of the Tusker fleet in 2019 to 20 per cent in 2020 and so far in 2021 they account for over 60% of orders. That share looks set to continue growing as 63 per cent of survey respondents from their annual survey said they would consider going electric for their next car.

This fits well with what Tusker experienced in 2020 with EVs accounting for half of deliveries with hybrids accounting for a further 20 per cent. Survey respondents said their main reason for going electric was the environmental benefit closely followed by being able to charge at home and making higher savings.

How does salary sacrifice work for companies?

Salary sacrifice provides a valuable benefit to help companies retain or attract good people to their organisation and sits alongside modern benefits such as Childcare Vouchers and Cycle to Work schemes.

Millennials in particular are attracted to benefits when joining a new organisation. Having the right scheme in place can be the difference between recruiting a person or them joining another company.

Employers benefit from National Insurance savings for Ultra Low Emission Vehicles and by getting employees into a new car with full maintenance and insurance they are meeting their Duty of Care obligations. Operating an Ultra-Low Emission Salary Sacrifice scheme contributes to them improving their environmental footprint. 

How much work will my HR department have to do to set up salary sacrifice?

Very little. Tusker provides a dedicated team responsible for delivering the implementation and carrying out the majority of the work. Its project implementation plan ensures key personnel are aware of their responsibilities, roles, and deadlines from the outset. Implementation generally takes between 4 to 6 weeks at zero cost to the employer.

Does a company need to be a certain size to have a salary sacrifice scheme?

There is no legislative restriction based on a company’s size and the benefit is designed for all employees, not just company directors or company car drivers.

Can the self-employed sole traders set up a scheme?

No as under HMRC legislation you need to be an employee to benefit from salary sacrifice as you are agreeing with your employer to vary your terms and conditions of employment to receive a benefit in lieu of salary. Smaller organisations can however operate salary sacrifice schemes and there are providers in the market that specialise in working with SMEs.

Will salary sacrifice affect my pension or other benefits?

Most companies use the notional salary to calculate pensions, which is based on the employee’s salary before any salary sacrifice contributions such as a car or childcare.

A final salary pension could be impacted particularly if you were nearing retirement age, so it would be worth reviewing the decision in detail. There would be no impact on an employee’s own private pension such as a SIPP.

As with all areas of pension we would recommend employees receive professional advice through their company or an Independent Financial Adviser before signing up to the scheme.