Employee guide to salary sacrifice
Unlock flexible, affordable and zero emission driving through your employer.
Fancy saving 30-60% on your dream electric car? Well now you can, with a salary sacrifice subscription by elmo. Watch the video below to find out how!
It’s really simple.
- You pay for an all-inclusive EV subscription through your employer by ‘sacrificing’ some of your pre-tax salary. This can save you an astonishing 30-60% of the cost.
- And don’t worry, there’s no extra cost or admin for your employer – we do all the paperwork and payroll calculations.
Read on to find out more about how Salary Sacrifice works for electric vehicles.
What is salary sacrifice?
A salary sacrifice arrangement is an agreement to reduce your entitlement to cash pay, usually in return for a non-cash benefit.
You can set up a salary sacrifice arrangement by asking your employer to change the terms of your employment contract.
A salary sacrifice arrangement must not reduce your cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure that National Minimum Wage rates are maintained.¹
Employee benefits of salary sacrifice
As an employee, the key benefits of an electric car subscription on salary sacrifice with elmo include:
- Save 30-60% on the cost of an electric car subscription
- Enjoy the convenience of an all-inclusive package that includes insurance, breakdown, maintenance & servicing, VED and more
- Choose from the largest range of subscription electric cars on the market
- Enjoy total flexibility by avoiding a multi-year lease contract
- Upgrade your car whenever you like
How does salary sacrifice work for electric vehicles?
Salary sacrifice for EVs enables you to sacrifice some of your pre-tax salary in return for an electric car hired by your employer. This reduces your tax liability and allows you to save between 30-60% of the cost. These savings help make the switch to electric cars not only possible, but also attractive for many.
What does salary sacrifice with elmo look like?
With elmo, you could save between 30-60% on an electric car of your choice. The scheme is simple: you pay for an all-inclusive EV subscription through your employer by ‘sacrificing’ some of your pre-tax salary. There’s no deposit to pay, fast delivery and setup and a convenient all-inclusive package which covers:
- Electric car with 800 miles per months
- Comprehensive insurance cover
- Scheduled maintenance and servicing
- 24/7 roadside assistance
- Vehicle excise duty and congestion charges
- Driver safety telematics
- Fair wear & tear on the tyres
You can also add extra mileage, up to two additional drivers and a range of charging options. There’s also no extra cost or admin for your employer, since we’ll take care of all the paperwork and payroll calculations. For the full guide please see our How it Works for Salary Sacrifice.
Here’s an idea of what an EV subscription on salary sacrifice could look like for you:
Try our Salary Sacrifice Calculator
Want to know how much you could save, based on your own salary? Try out our calculator. Simply input your salary and choose the car you are interested in and we’ll calculate your estimated savings.
Are salary sacrifice schemes worth it?
Electric car salary sacrifice schemes can be a tax-efficient way to get yourself an EV. If you’re interested in an EV and your employer offers a salary sacrifice scheme for them, opting for this means you won’t have to pay tax on the money used to obtain the car. This is unlike a conventional private purchase, which would see you fund the vehicle out of your own cashflow, after all taxes and other deductions have been taken.
The electric car salary sacrifice scheme is also a win-win programme both for employers and employees.
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You can find more detailed information on salary sacrifice and the benefits of salary sacrifice subscriptions here.
You can also find a step-by-step guide to getting set up for salary sacrifice with elmo by heading to our How it Works page.
Interested in signing up your company? Click the button below.
We know it can be a little confusing – so here are some frequently asked questions! If you still have questions, please email us at email@example.com.
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).
Does my employer need to get on board?
To set up a salary sacrifice arrangement, your employer will need to change the terms of your employment contract and you will need to agree to this change in order to participate in the scheme. Your employer will also have ultimate discretion on which employees are eligible.
Does my employer have to pay for this scheme?
With elmo, because employees pay for their electric car subscription via salary sacrifice, the cost of running the scheme for your business is effectively zero. 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.
What is benefit-in-kind (BiK) tax?
Salary sacrifice cars are not company cars but are still viewed as an employee benefit by HMRC. This means that the car’s value as a benefit-in-kind (BiK) is taxable. Benefit in Kind (BiK) tax is a form of tax an employee has to pay for receiving a perk or benefit related to their employment, and this perk can be used during our outside of business hours.
What happens if I leave my company?
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 30 days’ notice. There are some instances where the car may be returned early. If you leave your company, 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).
What happens if I need to take long-term sick leave?
The employer cannot withdraw the salary sacrifice benefit from staff who take maternity leave or long-term sick leave, and who are faced with a reduced salary as a result, as it is part of their terms and conditions of employment. However, employers could end up facing contract early termination costs, if those are applicable.
Is it better to salary sacrifice or buy a car?
If you buy a new EV outright, or finance it using a traditional car finance product, you will end up paying significantly more for the car and depending on low running costs to offset the high price. If you’re leasing a car through a personal contract hire leasing contract, it’s much of the same thing. As explained above, the government-backed salary sacrifice scheme allows employees to reduce their cash earnings in return for a non-cash benefit, including a car. Because the deduction is made before income tax is applied, the scheme can represent a significant saving over a normal finance product, which you pay for from your after-tax salary.
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