The 2022 Benefit in Kind Statistics annual report shows there has been a significant shift from diesel company cars which accounted for around 80% pre 2017, to 60% by 2019/2020 with a further decline to just 49% (355,000) in 2020/21. However, in the same year, 7% of company cars (52,000) were reported as being fully electric. It will be interesting to see what the 2023 report shows when published; watch this space.
Obtaining an Electric Vehicle (EV) through a company car scheme will generate a Benefit in Kind (BIK) value of only 2%. The 2023 UK budget confirmed that rate will be frozen until 2025 and then rise by 1% increments for the following two years. Even at the rate of 4%, this will be considerably less than the old BIK value on EV’s that was 16% prior to April 2020.
The drive and willingness from the government to encourage more EV schemes is clearly there, however this may not always be the case in future or as generous. The Guardian recently reported that charger installations are up 23% in the first seven months of this year. There’s also been a rise in the amount of fast charging stations we’re seeing outside of London, across the UK. With the backing from the government and access to fast charging stations getting better, now is the time to consider getting an electric vehicle.
Prior to 2017 the salary sacrifice/exchange rules did permit company cars to be part of flexible benefit packages, whereby perhaps an employee would choose a car over earnings, resulting in less tax and National Insurance. However, post 2017 any new company car scheme (all schemes from 2021) would no longer be able to benefit from tax savings and instead the new Optional Remuneration Arrangements would apply. EVs were excluded from this change in legislation, meaning these company car schemes can be operated via salary sacrifice/flexible benefit package through their employer, and whilst employees will still pay some Benefit in Kind Tax, it will only be on 2% of the benefit charge and both the employee and employer can make savings on National Insurance Contributions.
More UK cities are considering introducing clear air zones and or emission charging zones and even some parts of the motorway system are lowering speed limits in sections, to reduce the environmental impact.
Richard Petrie, Corporate Benefits expert notes the top three reasons as to why employers are using EV schemes:
- Sustainability / environmental credentials of a business and its employees
- Support employee financial wellbeing
- Helps attract, reward, and retain employees.
HOW DOES AN ELECTRIC CAR SCHEME WORK?
If for example, a car leasing company was used, they would usually supply the car and lease to the employer, who in turn offers it to employees. The employee would reduce their gross pay by the lease amount, to repay the employer and potentially benefit from tax and NICs savings. As mentioned above there will be some tax to pay, but if for example earnings were taxed at 40% or 42%% (Scotland), then the company car BIK value of 2% is a minimal offset. The employer will benefit by not paying Class 1 National Insurance on the value of the lease amount.
WHAT DO YOU NEED TO CONSIDER PRIOR TO IMPLEMENTING AN EV SALARY SACRIFICE SCHEME?
Here is a small sample:
- Who are the providers on the market?
- Is the provider a broker or a car leasing company and which would best suit your company and or employees?
- How long has your provider been operating in this space as there are frequent “new kids on the block” and does this matter for your procurement process?
- What are the terms and conditions of the provider you are considering and are they suited to your company and or employee needs?
- How might you communicate the scheme to your employees to encourage take-up?
- If offering accessories or extras are there any tax implications for the employer and or employee?
- What extras if any does the provider include such as maintenance etc.
Whilst these schemes can be extremely beneficial as previously outlined, it is important to understand all the facts prior to implementation, to ensure a successful and compliant scheme.
If you are interested in understanding more and or, require assistance with setting up such a scheme, please contact Karen Thomson, our payroll team, or your usual AAB contact.