The electric car revolution!

The issue

Since a recent Tax Bite ( we have been inundated with queries from employers and employees about how electric car salary sacrifice schemes work in practice. In fact demand has been so high that we have teamed up with a local firm of solicitors to offer a ‘one-stop shop’ electric car employee incentivisation programme advisory package (watch this space!).

The advantages

The main advantages of electric cars are as follows:

  1. There is now a great range of electric cars which often exceed the performance of far more expensive petrol vehicles (check out YouTube for a variety of races where the new Tesla Model 3 takes on a variety of high performance cars).

  2. For the three tax years from 2020/2021 an employee will be taxed on a negligible benefit in kind (0%, 1% and 2% respectively) for company electric cars. This applies to any costs relating to the car, including insurance and the installation of charging points at home or in the office.

  3. Importantly (unlike most things) an employee can agree to sacrifice salary in return for the company buying them a car (and insuring it) and they will then pay significantly less tax than would have been payable on the salary.

Most organisations with significant employee numbers are now looking at ways to tap into these benefits and broadly three approaches are being taken here:

1. Use as a low cost employee incentivisation and retention mechanism. Here all benefits are transferred to the employee.

2. Employer and employee both end up financially better off. Here, any savings are shared between the employer and the employee. In other words the employer will spend less than the salary would have cost to provide the employee with more than they could have afforded with their net salary.

3. Most of the benefit is passed to the employee but the employer retains employer NI savings.

Although, this is a very positive opportunity it should be entered into carefully. The following approach should generally be taken:

  1. Work out the policy. This involves determining exactly how generous the company is going to be – in other words how much gross salary needs to be foregone for every £100 of company car expenditure.

  2. Consider the mechanism for reimbursing employees for their expenditure such as charging and cleaning and link this into payroll.

  3. Create a clear employee communication document.

  4. Ensure a robust agreement is in place to agree the amendments needed to the contract.

This process takes time to implement and employers should be starting it now to get ahead of the curve.

Final comment

We think that this is the biggest employee tax incentive since childcare vouchers and it is much more widely applicable. This is something that simply cannot be ignored by businesses with a significant number of employees. Feel free to speak to your usual Forbes Dawson advisor about our ‘one stop shop package’.




Sign up for our newsletter

Interested in receiving the latest tax planning ideas?

Sign up to Tax Bites – our weekly update offering practical but effective tax saving tips.

Contact Us

You can use this form to request us to give you a call or if you prefer just leave us a message. Please be sure to leave us a contact number or email address for you and we will get back to you as soon as we can.

0161 927 9277


Fairbank House
Ashley Road
WA14 2DP