Strategy & Operations » Salary sacrifice EV schemes bolster corporate’s ESG targets

Salary sacrifice EV schemes bolster corporate’s ESG targets

Employers can reap environmental and governance benefits through the introduction of a salary sacrifice scheme

Introducing a salary sacrifice electric vehicle (EV) scheme provides a myriad of ESG-related benefits for employers, according to Matthew Walters, head of consultancy services and customer value at LeasePlan.

“Salary sacrifice is a really tax efficient, cost-effective way of getting some of the most exciting and most environmentally friendly vehicles onto fleet,” says Walters.

The benefits of salary sacrifice EV schemes stretch across multiple aspects of a company, from tax savings and employee satisfaction to helping meet environmental targets, he says.

“Not only are you committing to that electric future and taking that step, but you are also helping to get rid of some of the more polluting vehicles at the lower end.”

As such, it’s a great “boost” for companies non-financial reporting requirements, he says.

“You’re able to say as part of [the company’s] environmental credentials, that you’re helping the rest of your employee base move out of their internal combustion engine cars and into electric. What a brilliant footnote in your company report.”

Encouraging employees to travel in electric vehicles, for both business and personal use, will help support companies in reducing their carbon emissions and meeting their obligations under the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy.

Moreover, it can allow employers greater control over their ‘grey fleet’, a term used for when employees use private cars for business travel. Grey fleets can cause governance challenges for a company including responsibility for insurance and maintenance.

Communication vital to introducing schemes

LeasePlan offers a range of electric vehicles and salary sacrifice levels making it an attractive option for all salary ranges within a company. The fleet management provider partners with the employer to design an effective salary sacrifice scheme that works for the company and employees.

Due to the size and complexity of such schemes, it can take anywhere from three to six months to set up.

While the scheme can technically be available to everyone within the company, organisations will need to ensure the employee’s net salary does not take them below the national living wage, highlights Walters.

Additionally, for the scheme to remain compliant, the sacrifice amount must remain fixed throughout the defined term of the contract. It differs from other schemes such as gym memberships and healthcare, as car schemes are on fixed contracts for more than a couple of years, says Walters.

The only time a variation can happen is for life events such as parental leave or redundancy, he explains.

For this reason, LeasePlan include early termination insurance, end of contract damage and additional cover to remove the risk for the employer.

Government incentives

The UK government supports the role that fleets, and the fleet industry plays in getting EVs on the road and helping the government with their sustainability agenda, according to Walters.

Under the Plug-in car grant, the government will provide grants of up to £1,500 for electric cars with a value less than £32,000 – this is eligible for around 20 models on the market, according to government guidance. Although, this is set to end in March.

A salary sacrifice scheme naturally has national insurance savings when the gross pay is reduced which the employer can share with the employee, says Walters.

“Good practice is that the [employer] shares national insurance savings with their employees. It’s really easy to communicate, it’s a good message and it feels good that [to be an] employer doing the nice thing.”

A salary sacrifice electric vehicle is subject to Benefit in Kind (BIK), a tax on employees who receive benefits on top of their salary. The tax is calculated as a percentage of the car’s official list price and increases based on CO2 emissions.

Currently, for electric vehicles, BIK is “ultra-low” at one percent and increasing to two percent in March until 2025 – something that isn’t set to increase significantly in the next few years to come, assures Walters.

“HMRC would need to increase BIK rates on electric vehicles substantially before salary sacrifice isn’t part of the conversation.”

Find out more about salary sacrifice and electric vehicles from LeasePlan.


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