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Legislation and Grants

Some key legislation to help you understand the benefits of the salary sacrifice car schemes:

– From April 2017 ultra-low emission vehicles were able to be included in a salary sacrifice scheme whereby the reduction in salary was taken on gross pay. This meant the real cost of income tax and national insurance to the employee was reduced, and driving a new electric vehicle became more cost-effective.

– Ultra-low emission vehicles are exempt from paying road tax.

– From April 2020, for electric cars, the Benefit-in-Kind (BIK) rate is 0% for the 2020/21 financial year. The rate will rise to just 1% in 2021-22 and 2% in 2022-23. This will be capped until the end of the 2024/25 tax year.

For vehicles ordered from January 2021 a driver will be taxed on whatever the greatest is between:

a) the Income Tax due on the amount of salary sacrificed on the finance rental of the vehicle, or
b) the BIK charge on the car, which is determined by the P11D and CO2 emission levels of the vehicle.

A driver will not pay income tax on the amount of salary sacrificed to cover the maintenance and insurance elements in the agreement.

– Electric cars are exempt from the Optional Remuneration Arrangements (“OpRA”) legislation, which ordinarily restricts the tax and NIC savings available via salary sacrifice. Therefore, salary sacrifice car schemes such as Pink Salary Exchange, are particularly effective for fully electric cars due to the lower BIK tax rate (see above).

– Changes in National Insurance and salary sacrifice – The Government announced a National Insurance levy of 1.25% that is due to be introduced from April 2022/25. While the increase will affect both employers and employees, the impact of the rise will be mitigated for drivers on EV salary sacrifice schemes, making the Pink Salary Exchange car scheme and driving electric vehicles even more attractive.

Grants

– Electric Vehicle Homecharge scheme – the Government has announced a scheme whereby anyone with suitable off-road parking and driving an eligible plug-in vehicle qualifies for a £350 grant off the cost of buying and installing an electric charger for their home.

– The Workplace Charging Scheme (WCS) offers grant support to eligible businesses, charities and public sector organisations for installing charge points in the workplace. This is a voucher-based scheme whereby businesses can apply for up to 40 charge points per company, with a cap set at £350 per socket.