Businesses are rapidly adopting electric vehicle (EV) salary sacrifice schemes in a bid to offset the impact of Chancellor Rachel Reeves’s upcoming National Insurance tax changes.
Car providers have reported a surge in company interest in EV schemes following the announcement of increased employer National Insurance contributions (NICs) starting April 1. The changes, criticized as a “jobs tax” by business groups, will raise the levies businesses pay on staff wages from 13.8% to 15%.
Thom Groot, the chief executive of The Electric Car Scheme, noted that many firms are now looking to minimize the financial blow by enrolling employees in these schemes. National Insurance is only charged on the total after salary sacrifice contributions are made, making it an attractive option for companies.
Mr. Groot stated, “Pretty much overnight after the Budget, we saw a big uptick in interest. Previously there were a lot of businesses who were looking at it and telling us, ‘This is interesting, but I’m really busy.’ But now the increase in employee National Insurance contributions has sparked a lot of those businesses into action, because they’re being challenged on costs and asking, ‘How can we drive savings?’”
The Electric Car Scheme manages salary sacrifice arrangements for various organizations, including Holland & Barrett, Hitachi, Time Out, Tuffnells, and Millwall Football Club.
These schemes involve businesses leasing electric cars on behalf of their employees, who then receive the vehicles as a benefit and pay for them through pre-tax salary deductions. According to Mr. Groot, a typical monthly salary contribution is around £600, potentially enabling employers to reduce their NICs by approximately £90 per employee monthly. For a company with 100 participating employees, this could result in annual tax bill savings of £108,000.
Inquiries to The Electric Car Scheme jumped 20% after the Budget, with car orders rising 22%, Mr. Groot reported. Another car leasing provider said they also noted a similar post-Budget surge in interest.
The increase in EV scheme adoption comes as ministers are also considering whether to relax government EV sales targets, which manufacturers argue are overly ambitious.
Accountancy firm BDO published information stating that companies can make “considerable” NICs savings by offering EV salary sacrifice schemes, although some of these gains will be offset by other changes to benefit-in-kind tax rules coming into force.
From April 1, companies will have to pay a tax on the car equivalent to 3% of its list price, up from 2% previously, which will rise by one percentage point each year until April 2028.
However, BDO noted, “The overall financial impact achievable from implementation is still positive.”
Salary sacrifice schemes have contributed to the growing adoption of EVs in recent years, as many models remain too expensive for individual buyers. Mr. Groot explained that the schemes gained popularity after the pandemic because “people were looking at it as a way to offer a nice benefit for their employees, because it was a very, very competitive recruitment market. Now the emphasis is much more on cost savings.”
Historically, the profile of workers using the schemes has shifted to include a broader mix of employees, though higher earners remain disproportionately represented. Around 52% of staff leasing vehicles through The Electric Car Scheme are basic rate taxpayers, compared to 48% on higher rates. (Across the national workforce, 13% are higher-rate taxpayers.)
“Obviously, the price is still relatively expensive,” Mr. Groot added. “But not everyone goes for a new car. What we’ve seen over the last year is the second-hand car market in EVs has become much more active, and we’re seeing a lot of take up of second-hand EVs through salary sacrifice.” A typical second-hand EV can be leased for around £400 per month via salary sacrifice, he said.
The Treasury was approached for comment.
