Drivers' electric car tax benefits prompts salary sacrifice surge

Salary sacrifice for cars is seeing a resurgence as low benefit-in-kind tax rates for electric vehicles is making an economically attractive option to employees and employers, says Deloitte.

Under the funding method, an employee sacrifices a proportion of their salary before tax and national insurance is applied in return for a fully-funded car, with maintenance and insurance also included.

This has the potential to save drivers thousands of pounds a year compared to funding their own vehicles through a personal lease, while employers can also make national insurance savings.

However, the funding method had been declining in popularity since 2017 when the Government introduced the optional renumeration arrangements (OpRA) legislation, which effectively removed its tax and NI efficiency as it meant an employee would be taxed on the greater of the value of the benefit or the salary they gave up.

But Simon Down, associate director on the car consulting team at Deloitte, said an exemption for vehicles with 75g/km of CO2 or less – and the increasing numbers of battery electric vehicles and plug-in hybrids available - has made salary sacrifice an attractive proposition again,

“Salary sacrifice for electric vehicles is extremely popular,” he added.

“£886 a month was out of my price range unfortunately, but by dong it through salary sacrifice I’m effectively paying a lot of the cost out of gross salary, saving 42% tax and national insurance, getting in the bulk buying power that Deloitte can get and any VAT recoveries."