Need to know:
- Businesses are under pressure to cut carbon emissions, and employee vehicles are an obvious target.
- Salary sacrifice schemes mean this can save companies money, and make electric vehicles affordable for staff.
- Subscription models mean firms are no longer tied into long leases should an employee leave.
The need to reduce our carbon emissions is well known and, for many businesses looking to move towards net-zero, encouraging employees to switch to electric vehicles is an obvious way to play their part.
The most attractive option for employers looking to make electric vehicles widely available to their whole workforce, rather than as an exclusive benefit for certain people, is likely to be through a salary sacrifice scheme.
Steve Tigar, founder and CEO of loveelectric, says: “It runs in a similar way to the popular cycle-to-work scheme. The employee gives up a small part of their salary in exchange for a brand new, fully electric car. The salary sacrifice is deducted from their gross salary so the employee will pay less income tax and national insurance, and the employer will also reduce their national insurance bill.”
This could be worth as much as £80 to £100 per employee per month on each zero-emission vehicle on the scheme, says Mike Coulton, fleet product and policy manager at Volkswagen Financial Services Fleet. “Businesses can also offset their carbon emissions through a salary sacrifice car scheme,” he points out.
Value for employees
Employees, meanwhile, can access electric cars at between 30% and 60% cheaper than they would be able to privately, resulting in savings of between £5,000 and £15,000 over a three-year period, says Thom Groot, CEO and co-founder of The Electric Car Scheme. “Electric cars are also cheaper to maintain and are exempt from road tax,” he adds.
They also attract significantly lower rates of benefit-in-kind tax compared to more traditional models, which will make them more attractive to employees, including those who are provided with cars through a company car scheme paid for by the employer.
“The benefit-in-kind tax rate is currently 1%, rising to 2% in 2022/23,” says Rui Ferreira, chief commercial officer at Onto. “This means an Audi e-tron company car would cost an employee just £13 per month. An equivalent diesel car such as the Audi Q7 would hit a 37% benefit-in-kind rate, resulting in a monthly tax of £418.”
Such financial savings are likely to be attractive and appreciated by employees, says Rob Marshall, head of product and proposition at WorkLife by OpenMoney, as well as helping to demonstrate the employer’s wider commitment to the environment.
“Introducing an ultra-low-emission vehicle leasing scheme via salary sacrifice can help employers to demonstrate their environmental credentials, and show they are committed to supporting improvements in areas such as air quality,” he says. “Creating ways for employees to reduce personal overheads and their own carbon footprint can also be very appealing to existing and prospective talent.”
Employers can also benefit through other incentives, designed to encourage the adoption of infrastructure needed to help run a scheme. “There is no taxable benefit on the installation of a charging point at the employee’s home or on the provision of a charging point at the employee’s workplace,” says Jamie Wooldridge, a director in the audit and business advisory team at Mercer and Hole.
Many vehicles are now available on a subscription service, offering far greater flexibility than has previously been the case with company car schemes, says Ferreira. “Employers are billed on a monthly contract meaning, should an employee leave the business, the car can be returned at that month-end,” he says. “In comparison, had an employer leased a company car, they could be stuck with a car for 36 months or pay high early-termination penalties.”
For employers that choose to offer electric vehicles to staff, it’s important to communicate the full extent of the benefits to staff, says Marshall. “The fuel savings versus petrol or diesel can be significant,” he says. “There are other potential savings too – for example no charges for entering city centre low or zero emissions zones.”
Over the coming years, it’s likely that failing to offer electric vehicles could lead to some awkward questions from investors, employees and customers.
“It’s great if a [organisation’s] premises is running on 100% renewable energy, but if there are hundreds of employees coming to and from work each day in petrol and diesel cars, the carbon footprint of the business will still be very high,” says Greg Fairbotham, CEO at Zoom EV.
“Encouraging electric vehicle use and more sustainable transport choices among employees will better support sustainability initiatives and, for businesses that make contributions towards company car or business travel, costs will be kept down.”