Beat the increase in employer’s NIC with an electric vehicle salary sacrifice scheme

The recent announcement in the 2024 Autumn Budget that the rate of employer’s National Insurance will rise from 13.8% to 15% from April 2025 will encourage employers to look at ways to reduce this additional cost and one way that employers and employees might find appealing is an electric vehicle (EV) salary sacrifice scheme.

For those unfamiliar, an EV salary sacrifice scheme is a straightforward arrangement. An employee agrees to give up a portion of their gross salary in exchange for a non-cash benefit — in this case, an EV. This arrangement not only helps employees gain access to a new or used car without the upfront costs of buying or leasing, but it also substantially reduces the amount of income tax and National Insurance they pay, as their taxable income is lowered.

From an employer’s perspective, the scheme can deliver significant savings. Because the employee’s salary is reduced, the employer pays less in National Insurance contributions on that lower salary. Given the upcoming increase in employer’s National Insurance, these savings will be even more valuable starting in April 2025.

Paying Benefit in Kind

EV salary sacrifice schemes aren’t entirely tax-free. Employees are still required to pay tax on what’s called a Benefit in Kind (BiK). This is essentially a tax on the personal benefit they receive from having the car. For instance in the current tax year, the BiK rate for a fully electric car is just 2%, and this is set to remain relatively low over the next five years. Even with the increases planned, EVs will still offer substantial tax savings compared to traditional petrol or diesel vehicles.

Alignment with ESG goals

EV salary sacrifice schemes also align neatly with many companies' environmental, social, and governance (ESG) goals. By promoting the use of EVs, businesses can play a direct role in reducing carbon emissions. This helps companies meet their sustainability targets and demonstrates a commitment to environmental responsibility — something that is increasingly important to stakeholders, clients, and employees alike.

Given the dual advantage of cost savings and ESG alignment, it’s likely that more businesses will explore the potential of EV salary sacrifice schemes in the coming years. With the looming increase in National Insurance contributions, the financial case for these schemes has never been stronger.