Electric car salary sacrifice scheme
How electric car salary sacrifice works
A salary sacrifice scheme allows employees to ‘sacrifice’ some of their gross salaries so they can pay the subscription costs for an electric car. Unlike a standard subscription, a salary sacrifice scheme means the employees pay less due to the cost being taken pre-tax, and therefore reduces their tax liability. This allows employees to drive their own electric cars and saves them as much as 60% of the usual cost.
At elmo we’ve launched the first fully-managed subscription-based electric car salary sacrifice scheme in the UK. That way, your employees get all the benefits of driving an electric car, while your business cements itself as an environmentally conscious employer with highly-desirable perks.
What’s the difference between salary sacrifice schemes and a company car?
While both result in an employee receiving a car via their employer, a company car and salary sacrifice scheme have several key differences.
A company car is owned, leased, or subscribed via the company itself, and isn’t paid for by the employee. If owned by the business, a company car is treated as a fixed asset, which can have several tax implications such as depreciation. A company car is often offered to senior employees or those who spend a lot of time commuting or travelling between locations.
With a salary sacrifice, all permanent employees are offered the chance to opt into the scheme if they would like an alternative, affordable method to driving an electric car. It also means the value of the car is treated as taxable due to BIK (benefit in kind). The BIK rate will be as low as 2% until at least the 24/25 tax year, making a salary sacrifice electric car a massive cost-saving benefit.
What are the benefits of getting an electric car through salary sacrifice?
There are plenty of benefits to setting up an electric car salary sacrifice scheme, both for the employer and the employee.
Benefits for employers include:
- Attract and retain the best talent your industry has to offer
- Improve the environmental impact of your workforce
- Enjoy the total convenience with elmo managing all payroll and HMRC admin
- Avoid the risk and cost of early termination
- Pay nothing extra – elmo’s fee for running the scheme is equal to the employer’s NI savings
Benefits for the employees include:
- An all-inclusive package that includes insurance, tax, MOT, service, breakdown and more
- Save as much as 60% on the cost of an electric car subscription
- Choose from the largest range of subscription electric cars on the market
- Enjoy total flexibility by avoiding multi-year leases
- Upgrade or change your EV whenever you like
These benefits are all on top of the fantastic benefits experienced by electric car drivers, including attractive savings on fuel costs, congestion charges, and more.
How does an electric car salary sacrifice with elmo work?
We’ve made the entire salary sacrifice process as quick and simple as possible, so your business avoids admin headaches while your employees take advantage of a high-value benefit. If you’re interested in setting up a salary sacrifice scheme for your business, just follow these 10 easy steps:
Step 1: Create a business account – a director or someone with appropriate authority within your business can create a business account on the elmo website.
Step 2: Admin Services Agreement – you should then let us know via email that you wish to offer electric cars through salary sacrifice as a benefit for your employees, and agree to elmo’s terms for managing the scheme on their behalf.
Step 3: Scheme rollout – you should then announce the perk to your team. elmo has a range of decks, tax calculations and a salary sacrifice manual to support this.
Step 4: Approve each employee for the benefit – for each employee approved to participate, we will run the calculations for the car they would like and agree that it is appropriate. The calculator will show the cost of the subscription, the reduction in gross salary and by how much the take-home pay will be reduced after benefit-in-kind tax. The correct salary must be submitted to generate an accurate quote so that we can see which tax band the employee is in and how much National Insurance they pay.
Step 5: Make a subscription order – once approved you will then be able to make a booking for the subscription through the elmo business portal. The employee’s name and details will be given as the Main Driver and they will receive an email invitation from elmo to sign up as a user and submit information for approval.
Step 6: elmo approval – once the employee has created an account and submitted their driving licence and DVLA check code, the elmo team will check the details and approve them if they are eligible. This usually takes one working day.
Step 7: Delivery details – the elmo team will then check the delivery details submitted by you and confirm the place and date of delivery with the employee.
Step 8: Contracts – once a start date is confirmed, you will be sent a Subscription Agreement to e-sign for the car, and the employee will receive an Employee Salary Sacrifice Agreement to sign which confirms their agreement to participate in the scheme.
Step 9: Delivery – once the contracts are signed, everything is set for delivery on the agreed date. The employee will be contacted by the elmo team in the build-up to this and will receive a tracking link and ETA updates throughout the day of delivery. The employee will be shown all the features of the car during the delivery handover and a detailed inspection of the vehicle will be carried out and signed for. Then, the keys are handed over and your employee can make the most of their new electric car.
Step 10: Returns – to qualify as a benefit with HMRC, the subscription must be kept for a minimum of 12 months, after which it can be ended with a 30-day notice. There are some instances where the car may be returned early. Please contact elmo on firstname.lastname@example.org for more information.
What’s included in elmo’s electric car salary sacrifice scheme?
Employees approved by their employer to take part in an elmo electric car salary sacrifice scheme get everything included in an electric car subscription, with the added benefit of saving between 30-60% every month. Included in the cost are:
- The electric car of the employee’s choosing with 800 miles per month
- No deposit
- Fast, convenient delivery
- Comprehensive insurance
- Scheduled maintenance and servicing
- 24/7 breakdown cover
- Fair wear and tear cover on tyres
- Driver safety telematics
There is also the option to add extra mileage and up to two additional drivers, as well as a range of charging options.
How does this differ to the elmo electric car subscription?
Everyone who subscribes to an electric car through elmo can take advantage of our all-inclusive benefits. However, the key difference is that, depending on salary, employees can save as much as 60% on monthly costs, making it an affordable option for drivers looking to save money and reduce their carbon footprint.
How much does a salary sacrifice cost?
A salary sacrifice is designed as a win-win for employers and employees. Here’s how much you might expect to pay:
Costs to the business
Because employees pay for their electric car subscription via salary sacrifice, the cost of running the scheme for your business is effectively zero. Please contact email@example.com for more details.
Unlike multi-year leases, we also don’t charge your business early termination fees in the event you choose to discontinue the scheme or an employee leaves the business.
Costs to employees
A salary sacrifice scheme helps an employee drive a cost-effective, environmentally-friendly and technologically-advanced car with significant savings – anything from 30-60% depending on their salary. The cost is taken from an employee’s gross salary, which dramatically reduces their tax liability.
- Sarah, a marketing manager on £45k could subscribe to a Fiat 500e costing £449pm, but through salary sacrifice, it would only cost her £325pm – a 31% saving.
- Ted, a senior web developer on £80k could subscribe to a Kia e-Niro costing £619pm, but through salary sacrifice, it would only cost him £388pm – a 40% saving.
- Lisa, a CFO on £125k could subscribe to a Tesla Model 3 costing £1,199pm, but through salary sacrifice, it would only cost her £484pm – a 60% saving.
What are the tax benefits of electric car salary sacrifice schemes?
With an electric car salary sacrifice scheme in the UK, there are several attractive tax benefits.
An employee is not taxed on the salary they sacrifice as part of the scheme. However, employees are liable for benefit in kind tax, which is just 2% until the 24/25 tax year. With BIK as high as 37% for petrol or diesel cars, the benefits are huge.
Because part of an employee’s salary is given up, it also results in smaller National Insurance payments both from the employee’s and the employer’s point of view.
How salary sacrifice schemes work in the UK
In the UK, a salary sacrifice scheme is an agreement between an employer and an employee to forfeit – or ‘sacrifice’ – a portion of their gross salary in exchange for important goods or services. In doing so, it provides an employee with something – in this case, an electric car subscription – and passes significant savings on to the employee via NI and tax.
What rules affect salary sacrifice?
There are several rules that apply to a salary sacrifice scheme offered by any business in the UK:
- A salary sacrifice scheme is entirely at the discretion of the employee, and cannot be forced on an employee by their employer
- The scheme must not reduce an employee’s earnings to that which is below the national minimum wage
- To be eligible for a salary sacrifice scheme, the employee must be a permanent employee at the business
- The subscription is between the employer and the subscription company, so the employee cannot make amends to the contract directly with the subscription company
- The employer can’t withdraw the scheme from employees who are on long-term sick leave or maternity leave
The difference between offering electric cars via salary sacrifice schemes and as a company car
There are several key differences between offering an electric car via a salary sacrifice scheme compared to a company car. The biggest difference is that with a salary sacrifice, your employees pay the all-inclusive cost as a deduction from their gross salary. However, a company car would be provided at no cost to the employee, and instead is paid for by your business. As a result, company cars are usually only provided to senior-level employees or employees who spend a lot of time commuting or driving between different locations as part of their role.
Limited risks to your company
While offering your employees the opportunity to drive an electric car via a salary sacrifice scheme has many benefits, it has limited risks to your company. If an employee on the scheme leaves, the car is simply returned and your business isn’t left with an asset and nobody to drive it.
Following the 24/25 tax year, there is also the possibility that the government will increase the BIK rate from 2%. If this does happen, there will also be a rise in costs to the employee. However, it’s unlikely to be increased to a rate equivalent to those associated with petrol and diesel cars.
What admin is involved
An electric car salary sacrifice scheme through elmo is designed to be as quick and simple as possible, so we do most of the work for you. To do this, we:
- Carry out all cash flow adjustments and send monthly payroll instructions to you (including NI and VAT savings)
- Provide completed P46 (Car) forms at the start and end of each subscription to be submitted to HMRC
- Provide the P11D form to be submitted to HMRC at the end of each tax year
- Provide the letter that each participating employee must sign confirming their agreement to sacrifice part of their salary in return for the benefit
What to do next – employers
Ready to sign up and provide your employees with simple and affordable access to all the benefits that come with driving an electric car? All you have to do is sign up for a business account here to get things started.
What to do next – employees
If your employer is already signed up for an electric car salary sacrifice scheme via elmo, then simply speak to them about signing up so you can make your choice from the biggest range of electric cars in the subscription market.
If your employer isn’t yet signed up, you can send them more information about everything a salary sacrifice scheme entails, please ask them to email firstname.lastname@example.org.
Electric car salary sacrifice FAQs for employers
Are there any risks to the company?
We have tried to remove as much of the risk from the employer as possible. That’s why, unlike a salary sacrifice lease, with elmo there are no early termination fees if a staff member leaves the business.
If an employee leaves, can the car be reallocated?
Yes, we can either take the car back with no early termination fee or we can switch the subscription to a different employee (provided they are eligible).
Are sole traders and self-employed people eligible?
Unfortunately not, we can only provide our salary sacrifice service to incorporated entities e.g. LTD or LLC businesses.
Does a company need to be a certain size to be eligible?
Provided the business is an incorporated entity, we can operate the scheme for one-person bands and large corporations.
Does salary sacrifice for electric cars count as a non-cash benefit?
Yes! Which is why we’re pleased to now be able to offer this benefit to employers and employees alike.
How long does it take to roll out the scheme?
We’ve worked hard to streamline the process and take all the admin and legwork out of the process for businesses. We can usually get you set up in a week, then it just depends on how quickly you can engage your staff. Once they are enrolled, we can usually deliver their salary sacrifice car in a week!
How does payroll admin work?
For each Salary Sacrifice Subscription, we will send payroll instructions to you monthly detailing employee salary deductions and BIK amounts. We will also send you completed P46 (Car) forms to be submitted to HMRC at the start and end of each subscription, as well as the P11D form at the end of each tax year.
Electric car salary sacrifice FAQs for employees
Is electric car salary sacrifice worth it?
For many people, salary sacrifice is the cheapest way to switch to an electric car. Depending on how much tax someone pays (i.e. how high their salary is), the more they can save – somewhere between 30-60% depending on your tax bracket.
Will an electric car salary sacrifice affect your pension or other benefits?
Companies usually calculate pension contributions using notional salary (an employee’s salary before any salary sacrifice contributions such as a car or childcare). So your pension contribution could be impacted, especially if you are under 3 years from retirement. A private pension like a SIPP should not be affected. We recommend employees seek professional advice from their company or an Independent Financial Adviser before signing up for the scheme.
Would using the salary sacrifice scheme affect a mortgage application?
No, mortgage lenders should not include a salary sacrifice car as part of your affordability assessments.
How does this affect mileage costs for business travel?
This varies depending on whether the car is considered a company car, or a personal car being used for business travel. For company cars, the Government currently advises a rate of 5 pence per mile for fully electric cars. Hybrid cars are treated as either petrol or diesel for fuel rates – see the Advisory Fuel Rates for more information. If employees use their own personal vehicle (as would be the case with an elmo subscription), the Mileage Allowance Payments for electric cars are the same as for ICE vehicles: 45p per mile for the first 10,000 miles per year, and 25p per mile after that.
Are you allowed more than one car in your household?
Provided your salary does not go below £20,000 per annum after all deductions are made and provided your employer approves, you can usually take up to 2 cars on the Scheme. If at any point your salary does go below £20,000 per annum, your employer will no longer be able to make the usual salary sacrifice deduction pre-tax, so you must either agree to a deduction from your net salary, reimburse your employer from other private means or return the car.
Are only certain car models available?
With elmo you can choose any of our available models for salary sacrifice, provided that the cost does not reduce your statutory pay below minimum wage.
Do the cars need to be used for business purposes only?
No, our salary sacrifice cars can be used for both business and personal use.
Can I reclaim VAT and do the invoices include a VAT breakdown?
If your company is VAT registered, we will calculate the change in VAT for your VAT returns. You can usually reclaim 50% of the VAT on the subscription and 100% of the VAT on any ancillary services and other charges. The invoices you receive monthly for each subscription include a breakdown of VAT to support your reclaims process.
What legal documents are involved?
A company director will need to sign an Admin Services Agreement granting elmo the right to run the scheme for you, a Subscription Agreement for each Subscription Order and an Employee Subscription Agreement for each employee.
How will the scheme affect my salary?
Under the scheme, you reduce your annual pre-tax salary in exchange for an electric car subscription as a benefit provided by your employer.
By reducing your salary and receiving the benefit in return, you save on income tax and National Insurance. You do incur a benefit-in-kind tax (“BIK”), but the BIK rate on electric cars is only 1% in 21/22 tax year and 2% for the three following years. Your total savings after everything is taken into account should be between 30% and 60% of the advertised subscription cost (depending on your salary).