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Written by Rob Buckland
If you’re thinking of funding an electric car through a salary sacrifice scheme, you probably have a lot of questions. What are the advantages of a salary sacrifice scheme for an electric car driver? What are the disadvantages? Is this the right way for you to pay for your EV? This guide will give you the answers.
Pros of electric car salary sacrifice
There are all sorts of benefits to leasing an electric car through the salary sacrifice scheme:
Tax savings
With a salary sacrifice scheme, the payment you make for the car is deducted from your salary before tax. This means you don’t pay income tax or National Insurance on this amount, which reduces your tax bill. Learn more about how does tax work on a salary sacrifice deal.
Lower payments than a personal lease
This tax saving effectively makes the car cheaper. It will cost much less than if you arranged a personal lease outside of your employer’s salary sacrifice scheme, for example.
Fixed costs
Some schemes will include the cost of maintenance and even insurance as well as the car itself, making for easy budgeting with one fixed monthly payment. With an EV, this single payment could include the cost of installing a charging point at home.
No or low deposits
In some cases, salary sacrifice schemes don’t need you to put down a deposit up front. If there’s a deposit to be made it’s usually quite low, so you won’t need to eat into your savings.
Low benefit-in-kind (BIK) bill
Choosing an EV rather than a car with an internal combustion engine brings the benefit of very low BIK tax rates, further increasing your savings over buying the EV or leasing it.
Cons of electric car salary sacrifice
There are some disadvantages to funding an electric car through a salary sacrifice scheme. Keep these in mind before making your decision:
Less take-home pay
Remember that you’ll have less take-home pay because some of your salary will be used to pay for the car. Make sure the drop isn’t big enough to harm your state and private pension payments, or life insurance. Think carefully before signing up to a salary sacrifice scheme if you plan to take out a mortgage in the near future - the reduced take-home pay could affect how much you can borrow.
Fixed term commitment
A salary sacrifice scheme will commit you to a fixed term with your chosen car. If you want more flexibility, then such a scheme may not be for you.
Restricted mileage
Any lease, whether funded through a salary sacrifice or not, will have an annual mileage limit. Penalty charges will apply if you drive further than you expect.
Not great if you are on a low income
Salary sacrifice can make a new EV seem more affordable, but don’t risk overstretching your finances. For anyone on a relatively low salary, the extra expense of running a car could impact their ability to pay for other essentials.
No option to own the car
If you would like to own the car at the end of the agreement, then a salary sacrifice scheme isn’t suitable. There’s no option to own the car in the end.
Is EV salary sacrifice scheme worth it?
Yes, if you have a chance to run an EV through a salary sacrifice scheme you should go for it. There are big savings compared with leasing a car yourself or buying it outright. Because of the tax advantages offered to business users of electric vehicles, a salary sacrifice scheme is especially compelling if you want to drive an electric car. There are disadvantages to a salary sacrifice scheme, but there are many benefits, especially as EVs have such favourable benefit-in-kind tax rates.
Pros and cons of EV salary sacrifice FAQs
What are the disadvantages of the electric car salary sacrifice scheme?
The disadvantages include reduced take-home pay, limited flexibility, and no opportunity to own the car at the end of the agreement. For many car drivers, however, the benefits of EV salary sacrifice outweigh the disadvantages.
Is salary sacrifice a good way to buy a car?
With a salary sacrifice scheme, the driver doesn’t own the car. So, it’s a good way to pay for a car, but it’s not a good way to buy one.
Who owns the car after salary sacrifice?
Your employer will usually source the car through a contract hire and leasing company. During and after the agreement, the car belongs to the leasing firm.
