Michael loves his new car. “Driving an EV is a revelation,” he says.
When his four-year-old Audi RS6 reached the end of the lease, the chartered accountant in Oxfordshire asked not to use his last name, but he was increasingly unhappy with the fuel-hungry, raucous V8 engine.
He wanted a Porsche, but his wife refused: “She said that if I bought a Porsche, she would divorce me.” Then in April he bit a bullet and leased the Porsche Macan. The blessing of that salvation is that it is an electric vehicle. “The only way I can accept this,” he says.
In just a few weeks, he’s on sale in technology, but he says it’s extraordinary tax savings that really convinced him to make a switch.
His brand new Macan is just over £1,300 a month to lease taxes to him, which is better for £900 than when he leases his old Audi RS6. It “makes EVs worth it,” he says. And that meant paying a considerable amount of tax because he got the car through pay sacrifices.
In recent years, government generous subsidies to EVS and freeze tax thresholds have dramatically increased the appeal of using the sacrifice of pay to drive electricity. In last tax year, one in every EV registered in the UK was leased at pay sacrifice.
BVRLA’s Director of Policy and Public Relations Tom McLennan said EV Salary Sacrifice was “a little niche product.” However, in 2020, the government turbocharged the scheme by setting the tax rate at 0% for EVs purchased as a company’s automobile, compared to 37% for petrol and diesel. (The “Type of Profit” or BIK’s EVS rate is currently 3%, increasing to 9% in 2029-30.)
According to HMRC, in 2018-19, under 2,500 EVs registered as companies’ cars, including companies employed through pay sacrifices, were registered as companies’ cars. By 2022-23, that figure rose to 220,000.
Given the rapid rise in popularity, FT Money asks: Is the sacrifice of EV pay right for you?
For FT leader Jon Wingfield, the EV Salary Sacrifice was “easy.” He took out his first car with this plan in 2021 and hasn’t looked back.
Wingfield said “I want a low-risk way to soak my toes in the EV market,” and that EV pay sacrifice has provided the perfect opportunity for the vehicle to be offered on leases.
He took out Polestar 2 in a three-year scheme with Tusker, a provider paired by his employer. “It was (had) the best car I’ve ever had,” he says.
Over £850 a month, he got his car, insurance, service and redundancy cover. The bonuses often spend more than £100,000 a year on an annual salary, so the tax credits offered by the vehicle proved useful. If taxpayers exceed that amount, this means that individual allowances are tapering. That is, those who make between £100,000 and £125,140 face a marginal tax rate of 60%.
For parents of young children, the situation is getting worse. In the UK, if a parent’s net-adjusted salary is £100,000, you lose your valuable free childcare benefits. According to calculations by the Institute for Financial Studies, parents of two children at a London nursery will need to earn £149,000 (a wage increase of nearly 50%) to make up for their losses.
ft reader Alex Ross chose to sacrifice EV pay for this reason. “We have a nursery school that is almost two years old and it’s a huge impact from losing free time and tax-free childcare,” he says.
To those in the Ross position, pay sacrifice offers an attractive proposition. You can’t take a portion of your income in lieu of profit, such as increased pension contributions or company cars, and not fall below the edge of the cliff of £100,000. This opportunity is also appealing to employers who can reduce national insurance contributions that rose in April.
Companies are increasingly aware of the importance of workplace perks in keeping employees, and the industry is now serving them. When he moved employment this year, Wingfield says his new employer’s EV payroll sacrifice scheme was “one of the driving factors” that sealed the transaction.
FT Leader Alex Roth has discovered that electric vehicle leases reduce taxable revenues and help pay for their daughter’s nursery © Charlie Bibby/ft
When you lease a car at the expense of your salary, you are hiring it for a long time. This means that your costs tend to be lower than your “Purchase Individual Contract” (PCP) contract. This agreement gives you the option to buy a car at the end of the contract.
However, the monthly payments you make in the course of the scheme will not allow you to build stocks. And if the provider determines you have caused damage to your car, there may be a penalty to pay.
The EV payroll sacrifice scheme is run by an external leasing business and pairs with employers to provide a vehicle for staff to choose from.
Electric Vehicle Scheme, Octopus Electric Vehicles, and Tusker are among the providers that have set up stores as sacrifice providers for EV pay.
Launched in 2021, the Octopus EV currently offers 98 different vehicles on its website, ranging from the everyday Omoda E5 to the luxury Lotus Emeya sports cars (for disclosure, Octopus EV is a provider of FT employees).
The company estimates that 40% of 50-year-old taxpayers will be about 16% more than their comparable gasoline vehicles when they acquire a BMW IX1 electric vehicle under a four-year private contract employment scheme.
However, when you buy an EV at the expense of your salary, it is almost the fifth cheapest than a gasoline vehicle, completely reversing the calculations.
Nick Bustin, director of employment and tax at Chartered Accountant Haysmac, says the savings are in line with what you might expect. Usually, EV pay sacrifices save you between 20 and 50%, he says.
A key element of that saving comes from cutting the car tax of electric vehicle companies. The government has significantly reduced BIK tax paid on EVs compared to gasoline and diesel-powered vehicles.
Salary sacrifices also overcome another barrier for those considering EV. They tend to have much lower running costs and require maintenance, but electric vehicles tend to pay more forward than gas counterparts. By leasing the vehicle – of course they never own it, but they pay the driver only the lost value in about three years, rather than the entire cost of the vehicle.
“This is especially good for some high-income people,” says Jim Starling, an auto leasing expert who runs the YouTube channel. He says more expensive EVs that higher incomers prefer tend to lose value faster. “If you buy them, you need to absorb that depreciation, but it’s not that bad with a lease.”
It is important to carefully scrutinize the packages offered, Sterling adds. “It feels like Wild West at this point,” he shares that he has two quotes from the same provider, citing an example of an audience he contacted him last month, but his employers share that they are different. “One was from his employer, and one was his wife. There was £100 (per month) between them, and it was literally the same thing.”
Ultimately, they are limited by the sacrifice providers of their employers’ choice of salary and the transactions they offer. Schemes often include other perks as part of the monthly lease fee, including insurance, maintenance, services, breakdown coverings, and tire replacements.
It’s important to see which of these perks are included as part of your scheme. They can make a big difference to affordable prices, so you need to fork them yourself.
There are other drawbacks too. The sacrifice of EV pay can affect pension benefits, depending on how you calculate it. Teacher, FT Leader Hugh Parker, used the scheme to “seriously consider it” when his school introduced him. However, he says “soon after its launch” the school recognized that teacher pension plans members who registered at the victims of EV pay would “have significantly fewer pension contributions.” A TPS is a defined profit scheme, meaning that contributions and retirement payments are calculated based on taxable income.
“People should talk to their employers and ask how that affects pension contributions,” Sterling says.
It is also important to see what happens if you quit your job or become redundant. When FT Leader Scott resigned from his job at a big-four accounting firm, he had to pay an early termination request (equivalent to a four-month lease payment). He says that he was aware of the charges before he entered the scheme, but “no details were made as to how it would be applied.” The lease payment was taken before tax, but the termination claims were applied after tax, and he got a higher invoice.
Scott added that even during the scheme, he struggled to predict how pay sacrifices would affect take-home wages. His wages “hovered in the £100,000 to £125,000 range, which would complicate income taxes, in the range of around £100,000 to £125,000,” he says. “Adding a lease to the mix seemed to wreaked havoc with my pay tax code, making my monthly takeaway very unpredictable.”
His experience led him to decide on a future lease – he is now back to a used gas vehicle he bought entirely. “The clarity of the information provided before entering the lease leaves a lot of what is desired,” he said.
By 2030, the government required that EVs account for 80% of the annual revenue of most automakers, increasing to 100% by 2035.
From patchy charging point coverage, lack of standardization of connectors, and concerns about the EV range, reaching that target remains a number of challenges.
And while some may be happy to wait for coffee when the vehicle charges, others are quite reasonably wary of the prospect of standing late at night at the refueling station.
While pay sacrifices have proven successful in addressing concerns about the upfront costs of electric vehicles, the future beyond 2030 is uncertain.
So, what’s next? Experts and industry figures say that as electric vehicles become more common on the roads, it is inevitable that EV BIK rates will have to rise.
“For the past 25 years, both (road tax) and BIK have always had an environmental component,” says James Court, director of public policy at Octopus EV. He says, “We have already begun conversations with the government about what will happen to that administration after 2035.”
He hopes to see a rise even further, but points out that there will be ceilings if it goes beyond the “sacrifice of EV pay) and the wider company’s car fleet.
“There’s no doubt that EVs have to pay their own paths completely, and that’s the near-right pace of that transition,” he says.
Anna Krazinska, UK Campaign Group’s Transport & Environment Director, points to Germany as a case study of what to do.
Berlin ended its EV grant program in December 2023 without notice to help resolve the budget crisis. Government data was released in July of the following year that EV registrations were craters, falling nearly 40% from the previous year.
The appeal of an EV scheme depends on where you live and what property you live in. You may travel to the West Midlands, Wales and parts of the Northeast and find yourself running in the air due to lack of charging stations. You will also find that if you don’t have a private road at home, a public charger will become your finances drain. This is a problem for FT readers who say the lack of front drive makes charging difficult and expensive for vehicles. However, he still describes his experience as “widely positive.”
Krajinska says these are not the reasons to reduce subsidies for EVS itself. “For now, it’s important to maintain the current scheme.” “We need them because the EV market will take off to set up an economy of scale and become more competitive at an affordable price.”
