Employee Guide To Electric Car Salary Sacrifice

If your employer has offered you an electric car salary sacrifice scheme, one question is likely to be at the front of your mind:

Will I actually be better off?

For many employees, salary sacrifice can provide access to a new electric company car at a lower overall cost than arranging a similar vehicle privately.

However, before joining any scheme it is important to understand the financial impact, the contractual commitments and the practical responsibilities that come with driving a company car.

This guide explains the key areas employees should consider before joining an electric car salary sacrifice scheme.

If you simply want to estimate the cost of participation, use our Salary Sacrifice Calculator.

Remember that the overall salary sacrifice cost can vary depending on the monthly lease rental, maintenance package, insurance cost, contract length and annual mileage.

If you are new to salary sacrifice, start with our Salary Sacrifice Explained guide.

If you are an employer considering introducing a scheme, see our Employer Guide to Salary Sacrifice.

Quick Employee Checklist

Before joining an electric car salary sacrifice scheme, check these key points:

• What will the monthly salary reduction be?
• What will happen to your take-home pay?
• Is insurance, maintenance and breakdown cover included?
• What is the contract length and mileage allowance?
• What company car tax will you pay?
• What happens if you leave your employer early?
• Could pension contributions or salary-linked benefits be affected?
• Are there excess mileage, damage or early termination charges?

If any of these points are unclear, check your employer's scheme documents before signing.

Before You Join A Salary Sacrifice Scheme

Before signing any agreement, make sure you understand:

• The monthly salary reduction
• The contract length
• The annual mileage allowance
• What happens if you leave employment
• Whether pension contributions are affected
• Whether insurance, maintenance and breakdown cover are included
• Any early termination charges
• Any excess mileage or damage charges

Salary sacrifice schemes can provide excellent value, but they are long-term commitments and should be approached in the same way as any other significant financial decision.

Step 1: Show Me The Money!

The first question most employees ask is:

How much will this cost me?

To answer that question you need to understand:

• The amount of salary you will give up
• What is included within the scheme
• The impact on your take-home pay
• The company car tax that will apply
• Any additional costs not included within the arrangement

If you participate in a salary sacrifice scheme you will usually see:

• A reduction in gross salary
• Changes to Income Tax and National Insurance
• Company car tax on the vehicle
• A new company car provided by your employer

The overall aim is that the value of the car and associated benefits outweigh the reduction in take-home pay.

The easiest way to assess this is by using our Salary Sacrifice Calculator and comparing the results with the cost of obtaining a similar vehicle privately.

You may also want to compare the total cost with our Car Running Costs Calculator.

Step 2: Will Salary Sacrifice Save Me Money?

Salary sacrifice schemes are often promoted as a cost-effective way to drive a new electric car.

Whether you actually save money depends on:

• Your tax rate
• Your National Insurance position
• The vehicle selected
• The salary reduction required
• The company car tax payable
• What services are included within the scheme

Electric vehicles frequently produce the greatest savings because they attract lower Benefit-in-Kind tax rates than most petrol and diesel cars.

When comparing salary sacrifice against personal leasing, PCP finance or private purchase, make sure you compare the total package rather than simply comparing monthly payments.

Many schemes include:

• Insurance
• Maintenance
• Roadside assistance
• Vehicle tax where applicable
• Administration

The value of these items should be included when comparing alternatives.

Before making a decision, use both the Salary Sacrifice Calculator and the Company Car Tax Calculator to understand the likely financial impact.

You should also confirm that your reduced salary still meets legal requirements using the official GOV.UK National Minimum Wage checker.

Step 3: Check The Paperwork

The old adage "the job's not over 'till the paperwork's done" could not be more apt than when it comes to participating in an electric car salary sacrifice plan.

You will need to read carefully your employer's terms and conditions for the plan, for example:

• What is the scheme intended to do?
• What does it cover?
• Exactly how much salary reduction will apply?
• Is the change pensionable or eligible for overtime or other pay-related benefits?
• What are your rights if the arrangement leaves you out of pocket?
• If you opt in to the plan, can you opt out of it?
• What happens if you leave your employment through redundancy or a new job?

This list is not exhaustive, but you get the idea. A word with your professional advisers, employee representatives or HR team may be worthwhile.

Irrespective of how your employer will be providing an electric company car, read all contractual documentation thoroughly, including changes to employment terms and company car plan rules.

These are usually legal documents. If you do not understand them, you should ask questions before signing.

Pay particular attention to:

• The amount of the reduction in your pay
• The contracted period and mileage for the car
• Any legal obligations for maintaining the car
• The scope of any fuel or electricity reimbursement
• Penalties for leaving the plan early
• Additional costs or continuing obligations if your employment ends
• The return condition clauses for the vehicle
• Excess mileage, damage or fair wear and tear charges
• Exclusions from the motor insurance cover provided by your employer
• Items covered or excluded from maintenance and breakdown recovery agreements

Once again, this list is not exhaustive, but it shows the degree of detail you need to cover before committing to a scheme.

Step 4: Into Your Car

Once you know how the electric car salary sacrifice plan works, you can start looking for a car that meets your needs and your budget.

You can use our Electric Car Search to explore available electric vehicles.

Our calculator can also help you work out which cars may be affordable.

If the monthly pay reductions in our calculator do not match those required by your employer, ask why. There may be differences in insurance, maintenance, contract length, mileage, administration charges or employer policy.

So, now you've chosen your car and you're ready to get motoring.

Not quite yet.

This time you're taking delivery of a company car, possibly your first. You are responsible for it, you have taken a salary reduction to get it and if something goes wrong you need to know who is responsible for getting it sorted.

Taking Delivery

When you take delivery of your new electric company car, make sure you:

• Examine the bodywork and check for pre-delivery damage such as stone chips, scratches or scuffs to the paint, wheels, tyres or interior.
• Check everything is present, including keys, handbooks, charging cables, tyre inflation kit or spare wheel where applicable.
• Make sure any factory or dealer options you ordered have been fitted.
• Ask the delivery driver to show you that key equipment is working, including lights, infotainment, charging settings and driver assistance systems.
• Drive the car to make sure there are no obvious defects in the way it runs.

If you are new to electric vehicles, also check the charging cable supplied with the vehicle, charging arrangements at home and whether access to public charging networks is included within your employer's scheme.

Do not be afraid to reject the car if something is wrong or missing. It is your salary that is being reduced to pay for the vehicle.

Delivery is only the beginning.

You are now responsible for complying with your employer's insurance terms, servicing and maintenance requirements, warranty processes, manufacturer recalls and general roadworthiness obligations.

Taxation

Company cars are taxed as a benefit-in-kind based on official HMRC company car tax rules.

You then pay tax according to the rules for company cars rather than cash pay. These rules may also be affected by OpRA tax rules, which determine how salary sacrifice benefits are taxed.

Your employer will inform HM Revenue & Customs about the company car and HMRC may adjust your PAYE code to collect the tax due through payroll.

Make sure these changes are implemented correctly, otherwise you could end up with an unexpected tax liability later.

For more detail, use our Company Car Tax Calculator or read our Company Car Tax Explained guide.

Business Mileage

If you use the car for business travel, you should check how your employer reimburses business mileage.

If this is in line with the full rate of HMRC's business mileage allowances, there may be nothing more to do.

If not, you may need to check what tax relief or reimbursement position applies.

Step 5: And Out Of It Again

Eventually it will be time to change your car, and this means going through the same checks again.

Check that the terms of your employer's electric car salary sacrifice plan have not changed, and get familiar with any changes if they have.

You will also need to deal with the return process for your car, including:

1. Check the service record has been completed for all servicing and maintenance work.
2. If the car is approaching the age where an MOT is required, book the test in time to fix any defects before return.
3. If the car is still under manufacturer warranty, deal with warranty items before the warranty expires.
4. Check the car for damage to bodywork, wheels, tyres, interior, equipment and accessories.
5. Review mileage against the contracted mileage allowance.

You may be charged by your employer or the leasing company for excess mileage, missing equipment or damage beyond fair wear and tear.

If necessary, arrange an appraisal before the vehicle is returned, just in case repairs are needed first.

Leasing companies often have the right to charge for repairs required on return, even if they do not actually carry out the work.

And Finally...

Joining an electric car salary sacrifice plan is only the beginning. During the life of the arrangement, tax rules, employment policies, vehicle technology and personal circumstances can all change.

Make sure you keep up to date with:

• Your employer's salary sacrifice scheme rules
• Your company car policy
• Minimum wage rules
• Tax and National Insurance rules
• Company car Benefit-in-Kind tax rates
• Vehicle return conditions

Remember that this guide focuses on the key employee steps involved in joining an electric car salary sacrifice scheme. There may be more detail in your employer's own documentation, so check all available sources of information before committing.

Do not be afraid to ask questions before you sign.

Employee Salary Sacrifice FAQs

What should I check before joining a salary sacrifice scheme?

Check the monthly salary reduction, contract length, annual mileage allowance, insurance, maintenance, early termination terms and any effect on pension contributions or salary-linked benefits.

Will salary sacrifice save me money?

Salary sacrifice may save money where Income Tax and National Insurance savings, employer purchasing power and low electric car Benefit-in-Kind tax outweigh the cost of the vehicle benefit.

Does an electric car salary sacrifice scheme include insurance and maintenance?

Many schemes include insurance, maintenance and breakdown cover, but the details vary. Employees should check their employer's scheme documents carefully.

What happens if I leave my employer during a salary sacrifice scheme?

Early termination charges or return conditions may apply if employment ends during a salary sacrifice scheme. Check the scheme rules before signing.

Do I pay company car tax on a salary sacrifice car?

Yes. A car provided through salary sacrifice is normally treated as a company car, so the employee pays Benefit-in-Kind tax based on the car's taxable value.