Tax Hikes Driving UK Motorists to Electric Vehicles and Salary Sacrifice Schemes
A growing number of UK drivers are switching to electric vehicles (EVs) to sidestep upcoming tax increases. Simultaneously, companies are exploring salary sacrifice schemes to mitigate rising National Insurance (NI) costs.
From April 2025, the NI rate is set to jump from 13.8% to 15%. Simultaneously, the threshold for employee earnings will drop from £9,100 to £5,000. This situation is prompting businesses to search for methods to reduce expenses and boost employee income. “Pretty much overnight after the Budget, we saw a big uptick in interest,” explained Thom Groot, CEO of The Electric Car Scheme. Formerly, Groot noted, “there were a lot of businesses who were looking at it and telling us, ‘This is interesting, but I’m really busy.’”
Salary sacrifice schemes allow employees to pay for a car directly from their wages, offering potential tax savings. The typical monthly contribution for an EV under such a scheme is roughly £600, resulting in approximately £90 in NI savings, according to The Electric Car Scheme.
Companies are establishing company car benefits and observing increased demand for EVs. Salary sacrifice schemes aren’t limited to new electric models; used EVs also qualify for this scheme. Groot highlighted that there is a growing market for used EVs. He added, “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.”
EV owners should be aware that, while these schemes offer savings, another tax increase is approaching in April 2025. For fifteen years, electric models have been tax-exempt to encourage the adoption of cleaner vehicles. However, with over a million EVs on UK roads now, this exemption is ending. As a result, new EV buyers will initially pay £10 in tax, followed by the standard flat rate of £195 in subsequent years.
