Businesses are turning to electric vehicle (EV) salary sacrifice schemes as a strategy to lessen the impact of the increase in employer National Insurance contributions (NICs) announced by Chancellor Rachel Reeves.
According to industry reports, car providers have observed a significant increase in interest from companies looking to establish company car benefits following the announcement of the NICs changes. These changes, which business groups have criticized as a “jobs tax,” will increase the levies companies pay on employee wages from 13.8% to 15% beginning April 1.
Thom Groot, the chief executive of The Electric Car Scheme, stated that many firms are now aiming to reduce costs by enrolling employees in EV salary sacrifice schemes. National Insurance is only calculated on the post-sacrifice salary.
Mr. Groot explained, “We saw a major uptick in interest almost immediately after the Budget. Before, many businesses would express interest but were too busy. Now, the rise in employee National Insurance contributions has prompted those businesses to act, as they are seeking ways to cut costs and are asking, ‘How can we achieve savings?'”
The Electric Car Scheme manages salary sacrifice programs for a variety of organizations, including Holland & Barrett, Hitachi, Time Out, Tuffnells, and Millwall Football Club.
These schemes enable businesses to lease electric cars on behalf of their employees, who then receive the cars as a benefit and pay for them from their pre-tax salaries.
Mr. Groot noted that a typical monthly salary contribution is approximately £600, potentially allowing employers to reduce their NICs by about £90 per employee each month. If 100 employees participate in a company, this could result in annual tax savings of £108,000.
Post-Budget Interest Surge
Mr. Groot indicated that inquiries to his company surged by 20% following the Budget announcement, with car orders increasing by 22%.
A source from another car leasing provider reported a similar post-Budget increase in interest.
The increase comes as government ministers are considering relaxing EV sales targets, which manufacturers have argued are overly ambitious.
According to information published by the accountancy firm BDO, companies can achieve “considerable” NIC savings through EV salary sacrifice schemes. However, these savings will be partially offset by changes to benefit-in-kind tax rules.
Beginning April 1, companies must pay a tax on the car equivalent to 3% of its list price, up from 2% previously, and this will rise by one percentage point each year until April 2028.
However, BDO stated, “The overall financial impact achievable from implementation is still positive.”
Salary sacrifice schemes have been credited with boosting EV adoption in recent years, as many models remain unaffordable for drivers to purchase outright.
Mr. Groot noted that these 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”.
He added that the profile of workers using the schemes has gradually shifted from being dominated by high earners to a broader mix of employees—although higher earners continue to be disproportionately represented.
Of the companies utilizing The Electric Car Scheme, approximately 52% of employees leasing vehicles are basic rate taxpayers, compared to 48% on higher rates. (Nationally, 13% of the workforce are higher-rate payers.)
“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 costs £400 to lease per month through salary sacrifice, he said.
The Treasury was approached for comment.
