Although the cost of workplace benefits will rise from April, an electric vehicle (EV) salary sacrifice scheme could be an effective way to mitigate those effects and provide an attractive benefit for staff. Here’s how.

Salary sacrifice schemes enable drivers to lease a car through their employer and pay for it using their pre-tax income. As long as that vehicle emits 75g/km CO2 or less, both parties are taxed based on the remaining salary and the value of the car as a benefit, instead of the monthly lease cost.  

For employees, salary sacrifice is one of the most affordable ways to drive a new electric car. They pay a predictable monthly rental, and a scheme may include many additional benefits, such as insurance, maintenance, breakdown cover and VED (road tax), plus low-rate Benefit-in-Kind (BiK) for the car, all wrapped into one monthly cost. It’s typically cheaper than leasing the same car privately. 

For employers, salary sacrifice extends the advantages of company cars to a wider employee pool, reducing grey fleet mileage and CO2 emissions while promoting staff loyalty. Employers’ Class 1 National Insurance Contributions (NICs) are reduced when an employee gives up some of their salary in exchange for a car benefit. 

It’s become an attractive solution. The latest BVRLA data shows a 51% increase in members’ combined salary sacrifice fleet during Q3 2024, to around 100,000 vehicles, while 87% of new deliveries are battery-electric. 

The cost of EV salary sacrifice schemes will increase for employees this year, and there are several factors involved.

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.

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 could help mitigate some of the additional tax burden.

For an employee on the 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 could also benefit from implementing EV salary sacrifice - especially if drivers trade up beyond the value of the allowance.

The savings could be significant. One Ayvens customer is projected to reduce their NICs by an average £6,000 per employee over a four-year contract by replacing cash allowances with an EV salary sacrifice scheme.

Despite the incoming cost rises, EV salary sacrifice remains a tax-efficient benefit, and employees could still make material savings versus retail leasing. It provides a more affordable way for drivers to go electric, while supporting businesses’ wider environmental, sustainability and governance (ESG) initiatives and carbon reduction targets and cutting costs too. 

We’re here to help. Lombard’s EV Salary Sacrifice Scheme is provided by Ayvens, the UK’s largest fleet funding and management company, which has worked with hundreds of eligible businesses, implementing salary sacrifice schemes tailored to their unique needs and driver profile. 

Explore how we might be able to help your business and how the Lombard EV Salary Sacrifice Scheme could work.

Security in the form of guarantees and indemnities may be required. Product fees may apply. Finance is only available for business purposes. Eligibility criteria and T&Cs apply.

This product solution is provided by LeasePlan UK Limited (trading as Ayvens). LeasePlan’s registered office is at 165 Bath Road, Slough SL1 4AA and they are registered in England and Wales under company number 1397939. LeasePlan is authorised and regulated by the Financial Conduct Authority, register no. 312989. Lombard Vehicle Solutions (LVS) is a product provided for Lombard North Central plc (Lombard) by ALD Automotive Ltd (ALD). ALD uses the trading name Lombard Vehicle Solutions and/or LVS and ALD’s registered office is at Oakwood Drive, Emersons Green, Bristol, BS16 7LB and they are registered in England and Wales under company number 00987418. ALD is authorised and regulated by the Financial Conduct Authority, registered no. 308101. Lombard’s registered office is at 250 Bishopsgate, London, EC2M 4AA and they are registered in England and Wales under company number 00337004. Lombard is authorised and regulated by the Financial Conduct Authority for consumer credit activities, registered no. 710598. ALD acts as an introducer to LeasePlan only. Lombard may receive payment from ALD should you proceed with an agreement. You can ask Lombard or ALD about this.