Electric car sales are on the increase with preliminary data showing that sales were up by over 76% in 2021 compared to the previous years, and that electric cars represented 11% of the total cars sold in the UK during the year. It seems likely that this trend will continue, particularly as we get closer to 2030 when the ban on the sale of new petrol and diesel cars comes in to force.
Arguably the main barrier to more people opting for an electric car is the significant upfront cost to buy the car. However, you could help your employees to begin their transition to electric cars by introducing a salary sacrifice electric car scheme for Ultra Low Emission Vehicles (ULEVs).
Changes to the taxation of salary sacrifice schemes in 2017 meant that employees would be required to pay income tax on the greater of the benefit in kind on the car or the salary sacrificed.
However, these new rules do not apply to ULEVs, being cars that have emissions of 75g/km of CO2 or less and therefore the employee is simply taxed on the benefit in kind of the electric car.
With the benefit in kind rate for ULEVs set at 2% for 2022/23, this can result in significant income tax and National Insurance savings for the employee, as well as a National Insurance saving for the company. Depending on how the car is funded, the company may also be able to claim first year capital allowances.
For example, let’s say a ULEV has a list price of £55,000 and the annual business lease payments are £6,000. The employee, who is a higher rate taxpayer, sacrifices £6,000 of their salary and in return their employer provides them with the ULEV which they can use for business and personal use. In 2022/23 the savings for the employee and employer could be over £2,100 and £500, respectively.
If this is something which you are interested in exploring further, then please give me a call.