What does EV Salary Sacrifice mean in 2024?

As we move further into 2024, the EV salary sacrifice scheme is still a popular choice for businesses looking to reduce their carbon footprint. To help you understand what it’s all about, we’ll unpack the concept of EV salary sacrifice, explore how it works, and examine the recent changes brought about by the 2024 Spring Statement. Whether you're an employer looking to enhance your green credentials or an employee considering the switch to an electric vehicle, this guide will tell you all you need to know. 

So, what does salary sacrifice mean? Salary sacrifice schemes aren’t new, they’ve been around for decades. But they’ve become an increasingly popular employee perk over the last 10 years or so. 

Salary sacrifice schemes are offered by employers and supported by the UK government. Employees agree to sacrifice a part of their salary in exchange for non-cash benefits, such as pension contributions, childcare vouchers or payment of a company car lease. 

For example, an employee might sacrifice 5% of their salary with that 5% paid into a pension fund by their employer instead. Because sacrifices are deducted from an employee’s gross salary before tax is paid, salary sacrifice schemes can lower taxable income. This cuts the tax bill for both the employee and their employer, particularly due to lower National Insurance contributions. 

With an electric vehicle salary sacrifice scheme, an employee volunteers to sacrifice part of their salary in exchange for their employer covering monthly payments on an electric vehicle car lease. The employer leases the electric vehicle on behalf of their employee, and deducts the monthly cost of it from the employee’s salary.   

EV salary sacrifice schemes allow organisations to help their employees make the switch to driving electric in a hassle-free manner. Encouraging employees to drive electric cars can also help your organisation achieve sustainability goals, such as Net Zero targets. 

The UK government is actively encouraging the transition to electric vehicles as part of its broader strategy to reduce carbon emissions. The 2024 Spring Statement introduced several key changes that affect salary sacrifice schemes for EVs, including:  

• Changes in Benefit-in-Kind (BIK) rates 

The Benefit-in-Kind tax rates – which determine the taxable value of a company car provided to an employee – have been a significant factor in the attractiveness of EV salary sacrifice schemes.The 2024 Spring Budget maintained the favourable BIK rates for electric vehicles, ensuring that they remain a tax-efficient option. The BIK rate for EVs is set at 2% for 2024, far lower than the 30% for petrol cars. And whilst this 2% is set to rise a percentage point each year over the next three, even at 5% this is much lower than for non-electric vehicles. 

• Enhanced employer incentives 

To further incentivise employers to adopt EV cars and salary sacrifice schemes, the government has introduced additional tax relief for businesses. Employers can now claim enhanced capital allowances on EV charging infrastructure spending, reducing the overall cost of investing in EV charging points. See the government’s Workplace Charging Scheme (WCS) for more details. 

• National Insurance contributions reductions 

As of the 1st of April 2024, Class 1 National Insurance Contribution (NIC) for employees between the Annual Threshold and Upper Earnings Limit will decrease from 10% to 8%.  

Whereas employees used to pay 10% NIC on earnings between £12,570 and £50,268 (and 2% on earnings above that), they’ll now pay only 8%. This should further reduce how much National Insurance employees pay with an EV salary sacrifice scheme, although those savings won’t be too extensive. 

How much an employee will personally save in National Insurance and Income Tax reductions will depend on that employee’s personal situation. Factors including the size of their gross salary and how much of their salary they sacrifice each month are key.  

If you’re interested in an EV salary sacrifice scheme, you can find electric car salary sacrifice calculators online. Add your gross salary and an estimated salary sacrifice, and the EV salary sacrifice calculator will give you an idea of how much you can save. 

Note, this estimated saving will be just tax reductions, and won’t include savings made by driving an electric vehicle rather than a petrol or diesel one. 

Our DriveElectric EV salary sacrifice scheme is simple and flexible, and is designed to work for both employees and employers. It works like this: 

1. Get in touch with us to tell us about your organisation and its needs. We’ll put together a tailor-made salary sacrifice scheme for your business. 
2. Your employees can use our dedicated portal to choose their preferred electric car and lease agreement. We offer a wide range of electric vehicles, including SUVs and vans, Teslas, BMWs, Audis and more. 
3. We’ll then assign a monthly leasing cost to each employee taking part in the scheme. 
4. We’ll even set the payroll up for you if required. We’ll deduct the monthly sacrifice from each employee’s pre-tax salary and will adjust their PAYE and NI contributions.