Opinion: Why an EV salary sacrifice scheme still makes sense for fleets

By Matt Walters, head of consultancy services and customer value at Ayvens

As the new financial year approaches, many businesses may be questioning whether EV salary sacrifice schemes are still a cost-effective tool. 

While the upcoming changes may appear as a hurdle, EV salary sacrifice schemes still remain one of the most effective ways for businesses to manage costs while supporting their wider environmental, sustainability and governance (ESG) initiatives and carbon reduction targets. 

Understanding the upcoming changes  

From April 2025, several changes will affect EV salary sacrifice schemes which could lead to higher costs for both employers and employees. 

Company car tax is rising: After a three-year freeze, company car tax for EVs will increase from 2% of the list price to 3% from 6 April 2025 and rise by 1% point for the following two financial years, before rising to 7% in 2028/29, and 9% in 2029/30. 

This pushes up the cost of benefit-in-kind for drivers and Class 1A NICs for employers. 

VED exemptions are ending: From 1 April, annual VED rates will be equalised across all cars registered since 2017/18, which will add roughly £600 to the cost of a four-year EV lease.

New registrations priced at £40,000 or more will also attract the expensive car supplement, which adds a further £1,300 to the whole-life cost. 

As almost 80% of EVs are over £40,000, most monthly rentals will increase by £40 from April. 

Weaker PHEV incentives: The tax gap between EVs and plug-in hybrids will grow. Cars emitting between 1-50g/km CO2 will move into a single 18% company car tax band in 2028/29, regardless of their electric range. That’s within the scope of a four-year contract. 

Rising PHEV CO2 figures: Manufacturers have until 31 December to re-test their line-up for the new Euro 6e-bis emissions standard. 

This adjusts the influence of electric driving on PHEV fuel efficiency, which the ICCT claims could double some models’ published CO2 figures. 

If their emissions exceed 75g/km, they will become unviable on salary sacrifice schemes. 

Why fleets should still consider an EV salary sacrifice scheme 

Despite these changes, EV salary sacrifice schemes remain one of the most cost-effective solutions for fleets and businesses looking to manage their costs while supporting their wider ESG goals. 

Changes to employer NICs from 6 April 2025 were announced as part of the Autumn Budget 2024. 

The income threshold will be reduced from £9,100 to £5,000, while the rate will increase from 13.8% to 15%. Salary sacrifice schemes can help mitigate some of the additional tax burden. 

For an employee on an average UK income (£36,000), their employers’ NICs will increase from £3,700 per annum to £4,650 – amounting to a £1.9m tax bill for businesses with 2,000 employees. 

With a typical employee take-up rate of 7.5%, a salary sacrifice scheme could offset 12% of that increase – or 1.6% per 1% of the employee population that opts in. 

Employers who provide cash allowances can also benefit from implementing EV salary sacrifice - especially if drivers trade up beyond the value of the allowance. 

The savings can be significant. For example, one our own customers are projected to reduce their NICs by an average of £6,000 per employee over a four-year contract by replacing cash allowances with an EV salary sacrifice scheme. 

Navigating a changing landscape 

As tax regulations evolve, businesses must adapt to maintain cost efficiencies while staying committed to their long-term sustainability goals. 

Despite upcoming changes, EV salary sacrifice schemes remain a powerful tool for managing costs, reducing emissions, and supporting ESG initiatives.