Businesses across the United Kingdom are turning to electric vehicle (EV) salary sacrifice schemes as a strategy to offset the effects of the impending National Insurance (NI) tax hikes, set to take effect in April. This shift comes in response to Chancellor Rachel Reeves’s announcement of tax measures. The NI rate is scheduled to increase from 13.8 percent to 15 percent, a move many business groups have labeled as a “jobs tax.”
This change has prompted businesses to look for alternative benefits that could help reduce their tax liabilities. As a result, car providers are witnessing a surge in interest from companies looking to establish EV schemes. These arrangements offer a significant advantage: they allow businesses to reduce their NI contributions because the tax is only applied after the salary sacrifice deductions.
Thom Groot, CEO of The Electric Car Scheme, noted a substantial uptick in interest following the Budget announcement. “Pretty much overnight after the Budget, we saw a big uptick in interest,” he said, as reported by The Telegraph. The company saw a 20 percent rise in inquiries and a 22 percent increase in car orders during the same period. He observed that the increase in employee NI contributions spurred many businesses to take action, driven by a need to cut costs and find savings. Previously, many businesses were interested in the concept but weren’t prioritizing it. However, the looming tax increases have changed this. Now, according to Groot, the focus has shifted from offering a perk to employees to driving cost savings.
The salary sacrifice schemes operate by companies leasing electric vehicles on behalf of their employees. The employees then use the vehicles as a benefit and pay for them from their pre-tax salaries. Accountancy firm BDO emphasizes that businesses can achieve “considerable” NI savings through these schemes. However, it’s also important to note that these benefits will be somewhat reduced by changes to benefit-in-kind (BIK) tax rules, which also come into force in April. Companies will now be taxed on cars equivalent to three percent of the list price, up from two percent previously. This will continue to increase by one percentage point annually until April 2028.
Groot estimates a typical monthly salary contribution around £600. This, in turn, could allow employers to reduce their NI by approximately £90 per employee each month. For a company with 100 employees participating in the scheme, the annual tax bill savings would be £108,000.
BDO recognizes that while the forthcoming adjustments to BIK tax rules will influence the situation; “the overall financial impact achievable from implementation is still positive.” Salary sacrifice schemes have contributed to the increasing adoption of EVs in the recent years, especially since many EV models are still too expensive for drivers to purchase outright. As Groot explained, these schemes offer an appealing alternative. Previously, companies saw the schemes as a way to offer a valuable perk to attract and retain employees. “Now the emphasis is much more on cost savings,” he elaborated.
Around 52 percent of the staff who lease vehicles through The Electric Car Scheme are basic rate taxpayers, with 48 percent on higher rates. This statistic contrasts with the national workforce, where only 13 percent are higher-rate taxpayers.
