Michael loves his new automobile. “Driving an EV is a revelation,” he says.
As his four-year-old Audi RS6 reached the top of its lease, the chartered accountant from Oxfordshire, who requested us to not use his surname, says he was more and more sad with its fuel-hungry, noisy V8 engine — “and my spouse hated it”.
He needed a Porsche, however his spouse vetoed it: “She used to say she would divorce me if I purchased a Porsche”. Then in April, he bit the bullet, leasing a Porsche Macan — its saving grace being that it’s an electrical car. “The one approach I may make this acceptable,” he says.
In just some weeks, he’s bought on the know-how, however he says what actually satisfied him to make the swap was a unprecedented tax saving.
His model new Macan prices him simply over £1,300 per 30 days after tax to lease, leaving him £900 higher off than when leasing his outdated Audi RS6. It “made going EV worthwhile,” he says. And it meant a sizeable tax saving, since he bought the automobile by means of wage sacrifice, which permit staff to scale back their taxable revenue in trade for a perk.
In recent times, beneficiant authorities subsidies for EVs and frozen tax thresholds have dramatically elevated the attraction of utilizing wage sacrifice to drive electrical. Within the final tax yr, round one in 5 of all EVs registered within the UK have been leased through wage sacrifice, based on evaluation shared with FT Cash by the British Car Rental & Leasing Affiliation, a commerce physique.
In years passed by, EV wage sacrifice was “a little bit of a distinct segment product”, says Tom McLennan, director of coverage and public affairs at BVRLA. However in 2020, the federal government turbocharged the schemes by setting the tax fee for EVs bought as firm automobiles at 0 per cent — in contrast with charges as excessive as 37 per cent for petrol and diesel. (The “profit in form”, or BIK, fee for EVs is presently 3 per cent and can rise to 9 per cent in 2029-30.)
In 2018-19, fewer than 2,500 EVs have been registered as firm automobiles — which embrace these employed through wage sacrifice — based on HMRC. By 2022-23, that determine had risen to 220,000.
Given its fast rise in recognition, FT Cash asks: is EV wage sacrifice best for you?
For FT reader Jon Wingfield, EV wage sacrifice was a “no-brainer”. He took out his first automobile on the scheme in 2021 and hasn’t seemed again.
Wingfield says he “needed a low-risk approach to dip my toe within the EV market” and that EV wage sacrifice — through which autos are supplied on lease — supplied the right alternative for that.
He took out a Polestar 2 on a three-year scheme with Tusker, the supplier his employer had paired with. “It was the very best automobile I ever [had],” he says.
For simply over £850 a month, he bought the automobile, insurance coverage, servicing and redundancy cowl. Bonuses typically took his yearly pay over £100,000 a yr, so the tax reduction afforded by the car proved helpful. Above that quantity taxpayers see their private allowance tapered away, which means anybody incomes between £100,000 and £125,140 faces a marginal tax fee of 60 per cent.
For folks of younger youngsters, the state of affairs is even worse. In England, if one dad or mum’s net adjusted pay tops £100,000, they lose helpful free childcare advantages. Earn greater than this, and a dad or mum of two youngsters at a London nursery would want to earn £149,000 — a pay rise of almost 50 per cent — to compensate for the loss, based on calculations by the Institute for Fiscal Research.
FT reader Alex Ross opted for EV wage sacrifice for this very motive. “We’ve an virtually two-year-old in nursery and could be closely impacted by shedding the free hours and tax-free childcare,” he says.
To folks in Ross’s place, wage sacrifice presents a pretty proposition: forgo a portion of your revenue in lieu of a profit, corresponding to elevated pension contributions or an organization automobile — and scale back your taxable earnings beneath the £100,000 cliff edge (however be warned, this won’t work in Wales, because the threshold relies on gross wage, fairly than internet adjusted pay). The chance can be alluring for employers, who can scale back their nationwide insurance coverage contributions, which rose in April.
Corporations more and more recognise the significance of office perks in retaining workers and an trade has sprung as much as service them. Wingfield says that when he moved jobs this yr his new employer’s EV wage sacrifice scheme was “one of many driving elements” that sealed the deal.
While you lease a automobile on wage sacrifice, you’re hiring it for an prolonged interval. This implies your prices are usually decrease than in a “private contract buy” (PCP) settlement, through which the cash you pay offers you the choice to purchase the automobile on the finish of the contract.
However the month-to-month funds you’ve made in the course of the course of the scheme gained’t construct you up any fairness — and there could also be a penalty to pay if the supplier deems that you’ve got broken the automobile.
EV wage sacrifice schemes are run by exterior leasing companies, which pair up with employers to supply autos for employees to select from.
The Electrical Automobile Scheme, Octopus Electrical Car and Tusker are among the many suppliers which have arrange store as EV wage sacrifice suppliers.
Octopus EV, which launched in 2021, presently presents 98 completely different autos on its web site, starting from the on a regular basis Omoda E5 to the luxurious Lotus Emeya sports activities automobile (for disclosure, Octopus EV is the supplier for FT workers).
The corporate estimates that if a 50-year-old, 40-per-cent taxpayer have been to get a BMW iX1 electrical automobile on a four-year private contract rent scheme, it will price some 16 per cent greater than the equal petrol car — the BMW X1.
However purchase the EV on wage sacrifice, and it really works out roughly a fifth cheaper than the petrol automobile, utterly reversing the calculus.
The saving is according to what you would possibly count on, says Nick Bustin, employment tax director at chartered accountant HaysMac. Usually, EV wage sacrifice saves you between 20 to 50 per cent, he says.
An necessary component of that saving comes from the lowered firm automobile tax for the electrical automobile. The federal government has massively lowered the BIK tax paid on EVs, in comparison with petrol or diesel-powered autos.
Wage sacrifice additionally surmounts one other barrier for these contemplating an EV: although they’ve a lot decrease operating prices and have a tendency to require much less upkeep, electrical automobiles are usually costlier upfront than their petrol counterparts. By leasing the car — although after all they by no means personal it — motorists pay just for the worth misplaced over three or so years, as a substitute of the complete price of the automobile.
“It’s notably good for a few of these automobiles larger earners are going for,” says automobile leasing skilled Jim Starling, who runs the YouTube channel Positively Not A Guru. He says that the pricier EVs favoured by larger earners are inclined to lose worth quicker. “For those who purchase them, it’s a must to take in that depreciation, however on a lease, it’s not so unhealthy.”
It’s necessary to scrutinise the packages on provide fastidiously, Starling provides. “It feels just like the Wild West in the intervening time.” He offers the instance of a viewer who contacted him final month to share that he had two quotes from the identical supplier, however with completely different employers. “One was from his employer and one was his spouse’s. There was £100 between them [per month] they usually have been for actually the identical factor.”
In the end, you’re restricted by the wage sacrifice supplier your employer has chosen and the offers they provide. Schemes typically embrace different advantages as a part of the month-to-month leasing charge, corresponding to insurance coverage, upkeep and servicing, breakdown cowl and tyre substitute.
It’s necessary to see which of those perks are included as a part of your scheme, and which you’ll have to fork out for your self, as they’ll make a giant distinction to affordability.
There are different drawbacks too. EV wage sacrifice can have an effect on your pension advantages, relying on the way it’s calculated. FT reader Hugh Parker, a trainer, “severely thought of” utilizing the scheme when his college launched it. However he says that “not lengthy after launch”, the varsity realised that members of the Academics’ Pension Scheme who signed as much as EV wage sacrifice “would get considerably smaller pension contributions”. The TPS is an outlined profit scheme, which means that contributions and retirement payouts are calculated primarily based on taxable revenue.
“Folks needs to be talking to their employer and asking the way it impacts their pension contributions,” says Starling.
It’s additionally necessary to test what occurs in the event you depart your job or are made redundant. FT reader Scott needed to pay an early termination cost — equal to 4 months’ value of lease funds — when he resigned from his job at a Massive 4 accounting agency. He says that whereas he was conscious of the cost earlier than he entered into the scheme, “particulars about how it will apply weren’t made clear”. Whereas lease funds have been taken earlier than tax, the termination cost was utilized publish tax, leaving him to foot a better invoice.
Scott provides that even in the course of the scheme, he struggled to foretell how wage sacrifice would impression his take-home pay. His pay hovered “across the £100,000 to £125,000 vary the place revenue tax will get sophisticated,” he says. “Including the lease into the combination appeared to play havoc with my PAYE tax codes and my month-to-month take-home ended up fairly unpredictable.”
His expertise led him to determine towards leasing in future — he has now returned to a second-hand petrol car that he’s purchased outright. “The readability of data supplied earlier than getting into into the lease leaves so much to be desired,” he mentioned.
By 2030, the federal government requires EVs to make up 80 per cent of most carmakers’ annual gross sales, rising to 100 per cent by 2035.
There stay a host of challenges in reaching that concentrate on, starting from patchy charging level protection, an absence of connector standardisation and issues about EV vary.
And whereas some is perhaps glad to attend with a espresso as their car expenses, others are fairly fairly cautious on the prospect of standing round late at night time in a refuelling station.
Wage sacrifice has proved profitable in addressing issues concerning the upfront price of electrical automobiles, however its future past 2030 is unsure.
So what’s subsequent? Specialists and trade figures say it’s inevitable that BIK charges for EVs must rise as electrical automobiles change into extra prevalent on the roads.
“During the last 25 years, each [road tax] and BIK have at all times had an environmental component,” says James Courtroom, director of public coverage at Octopus EV. He says he’s “already beginning conversations with authorities [about] what occurs to that regime post-2035”.
He expects additional rises to BIK, however notes that there’s a ceiling which, if exceeded, “will kill off [EV salary sacrifice] and the broader firm automobile fleet.”
“There’s little question that EVs must absolutely pay their approach, it’s nearly the correct tempo of that transition,” he says.
Anna Krajinska, UK director of marketing campaign group Transport & Surroundings, factors to Germany as a case examine of what to not do.
Berlin ended its EV subsidy programme with no discover in December 2023, to assist resolve a funds disaster. Authorities information launched the next July confirmed that EV registrations had cratered, falling almost 40 per cent yr on yr.
The attractiveness of EV schemes additionally is determined by the place you reside, and how much property you reside in. Journey to components of the West Midlands, Wales and the North East, and also you would possibly end up operating on empty because of the lack of charging stations. And in the event you don’t have a driveway at house, you could possibly discover that public chargers change into a drain in your funds — this is a matter for FT reader Ross, who says his lack of a entrance drive makes charging the car tough and costly. Nonetheless, he nonetheless describes his expertise as “broadly optimistic”.
Krajinska says these are usually not causes to scale back subsidies for EVs themselves. “For now, it’s necessary that we hold the present schemes in place”. “We want them as a result of we want the EV market to take off to get the economies of scale in place, in order that they change into reasonably priced and aggressive.”
