Tax benefit leads to surge in interest for switching to plug-in cars
There are times when certain products or services grow in popularity. But within the fleet sector it is hard to remember an occasion when a funding solution grew at such speed.
Yet that is precisely what is happening with salary sacrifice, which is growing in popularity at such rapid pace that it is hard for those in finance, HR and fleet not to have a look at what all the fuss is about.
The reason is down to the very low benefit-in-kind tax (BIK) on electric cars (EVs), which has resulted in salary sacrifice becoming by far the cheapest way to source an EV.
Put simply, if an employee is paying 20 per cent tax on their salary, and decides to sacrifice a portion of that salary for an electric car, the amount of income tax and national insurance contributions they pay will be reduced.
Their employer then provides them with a fully funded, maintained and insured electric car, on which they will be paying very low BIK tax, providing an immediate saving compared to buying that vehicle or funding it through a personal lease.
The employer also gains by making Class 1a National Insurance savings as well as offering an additional staff benefit, at no extra cost.
“We are in a very unique moment in time,” explains Lee Brown, managing director of Grosvenor Leasing, “and this is all down to the very appetising BIK rates on plug-in cars.
“It’s for this reason why interest and uptake of car salary sacrifice schemes has never been higher, and it has become the number one topic of discussion with our existing and prospective customers who are interested in setting up a scheme.
“What surprises most people is how straightforward and risk-free a salary sacrifice scheme is.
“Our own offering takes very minimal input or administration to put in place, which means that businesses won’t get bogged down in lots of administration or soak up vast amounts of staff time.
“Also, because our scheme comes with protection against employees leaving the company, or going on extended sick or maternity/paternity leave, it’s very risk-free indeed.”
Grosvenor Leasing is the UK’s largest privately-owned contract hire and fleet management specialist, and has won multiple awards for its work around the green agenda.
Its 0Zone solution, which supports companies with the transition to electric vehicles, was ground-breaking when launched in 2017. As a result of Grosvenor’s commitment to helping its customers with the move to alternative fuels, approximately 80 per cent of all new car orders now have plug-in capability.
Grosvenor Leasing’s salary sacrifice solution has been a key part of its proposition for many years. However with conditions being so perfect for a surge in uptake it has recently further enhanced its offering to become one of the best in the market.
As a result, employees who choose to sacrifice part of their salary for a plug-in hybrid or fully electric car benefit from a fully maintained, tax and insured company car, and if they leave they can hand the car back without any penalties.
“If you are going to choose a fully electric car, then salary sacrifice is by far the best option as it will save you up to 40 per cent compared to taking out a personal lease,” continues Lee.
“If you are looking for a vehicle with a CO2 over 75g/km then salary sacrifice is not an option, however because The Grosvenor Group offers traditional contract hire, specialist fleet management and personal leasing, we can provide a complete solution for all drivers under one roof – even if a plug-in vehicle is not yet suited to their needs or job role.
“Currently, there is no better way than salary sacrifice for encouraging drivers into electric cars, and having a scheme in place sends out a strong message about a company’s desire to promote carbon-zero motoring.”
To give a flavour of the potential savings of salary sacrifice compared to an employee funding a car through a personal lease, a 20 per cent taxpayer choosing a Peugeot E-208 Electric Hatchback 100kW Active Premium 50kWh five-door auto on a three-year lease covering 10,000 miles per annum, would save £168.61 per month.
A 40 per cent taxpayer choosing a Tesla Model 3 Saloon RWD four-door auto with 15,000 miles per annum over three years would save £318.60 per month.A 40 per cent taxpayer choosing a Porsche Taycan Saloon 300kW 79kWh four-door RWD auto (five seat) with 10,000 miles per annum over three years would save £491.00 per month.
“Examples such as these demonstrate why the financial benefits are so strong,” says Lee, “and at Grosvenor Leasing we manage everything for the customer including payroll reports, contract variations and the full in-life management of the vehicle including maintenance, accidents etc. There is also a free work charger for every five orders.
“All the employer has to do is authorise orders with living wage checks, deduct the employee’s salary and carry out P11d reporting, which Grosvenor provides to them in a report. To reduce administration for the employer further, any recharges are also charged direct to the employee rather than the company.
“Quite simply, this scheme has multiple advantages to both employer and employee and is simple to set up and administer.
“It’s for all of these reasons that salary sacrifice is the main talking point at the moment, particularly because the very low BIK rates that underpin the benefits are fixed until 2025, and then once BIK rates begin to rise for plug-in cars, which they inevitably will, the benefits will begin to lessen. So this really is a very good opportunity for businesses and their employees to take advantage of the financial conditions and accelerate their shift towards zero-emission motoring.”