By Matthew Walters, head of consultancy services and customer value at ALD Automotive | LeasePlan (UK) 

Matthew Walters, head of consultancy services and customer value at ALD Automotive | LeasePlan (UK)

With the House of Lords committee calling on the Government to tackle EV misinformation and insufficient charging infrastructure, it’d be easy to understand why there might be a lack of uptake of electric vehicles. However, the committee noted that there’s one existing Government policy having a positive impact on the transition to EVs – salary sacrifice schemes.

Data from BVRLA has shown that salary sacrifice grew by over two-thirds (68%) year-on-year in the third quarter of 2023, showing the scheme’s popularity. But with the Chancellor failing to provide updates on EV incentives, such as the future of electric car Benefit-in-Kind (BiK) rates in his Spring Budget, many will be questioning the future of salary sacrifice schemes and whether they can carry on an upward trajectory.

Setting the scene for salary sacrifice schemes   

Salary sacrifice schemes have been an important driver of the UK’s electric vehicle market since the tax incentives were renewed four years ago. There are many advantages to opting into a salary sacrifice scheme. These schemes enable employees to lease a low-CO2 plug-in hybrid or EV car through their employer, fund it with their pre-tax income, and then pay tax and National Insurance on the remainder which typically reduces their tax bill.

It can’t be emphasised enough how important salary sacrifice schemes are for helping drivers transition to EVs. With such strong incentives for company car drivers, salary sacrifice is the most cost-effective and easiest way to get a new EV – helping drivers to make a more sustainable choice and swap to the latest tech after just a few years.

Reports also suggest that employees are more likely to stay with the company that offers them access to the electric car scheme and data from YouGov shows that 74% of employees would like their companies to offer the scheme.

Alongside these employee retention benefits, salary sacrifice schemes provide people with the chance to upgrade their cars and cost-effectively enjoy a new electric vehicle while switching to a more sustainable vehicle option.

What will the future of salary sacrifice look like?

While the current rate of BIK tax for electric and plug-in hybrid models is currently at 2%, this is set to change post-March 2025 with it steadily increasing up until 2028. But in four years, which is typically the next replacement cycle for fleets, it’s unknown what will happen to BiK rates causing uncertainty for those considering making the switch to EVs.

With the Government failing to provide any updates about salary sacrifice in its Spring Budget, we’ve outlined several suggestions that are needed to ensure the future of salary sacrifice.

Company car tax bands

Publishing company car tax bands beyond April 2028 is increasingly important. Businesses are still enduring extended delivery times for new vehicles and longer lifespans are increasingly common. Some fleets will already have cars on order that will still be on the road after the current tax bands expire.

For salary sacrifice to remain a cost-effective and attractive option, we predict that BIK rates will need to remain low for EVs to give people the confidence to go electric and help increase the uptake ahead of the ZEV mandate.

Second-hand schemes

While salary sacrifice schemes are a great opportunity to drive a brand-new car at the most affordable price, a scheme for second-hand electric vehicles can make EVs more accessible to the mass market.

This would give people access to nearly new, fully maintained electric cars while still getting all the benefits of transitioning to an EV. With petrol and diesel cars set to be banned from 2035, there needs to be a strong second-hand market for electric cars to be affordable and accessible to drivers. Through second-hand salary sacrifice schemes, companies can ensure more EV stock is available to drivers while still being at a cost-friendly price point.

ALD Automotive | LeasePlan UK recognises this and is in the initial stages of developing our proposition around Multi Cycle Asset Management (MCAM), taking this important step towards the transition to a more sustainable future.

Advancements in EV technology  

As battery technology continues to evolve, more affordable vehicle models have entered the EV market and are becoming a viable option for drivers. While previously dominated by high-income workers enjoying tax advantages, salary sacrifice schemes could become more accessible as EVs begin to be more affordable for drivers.

Changing charging infrastructure   

Developing suitable charging infrastructure is key to keeping the momentum up for the uptake of EVs. While the Chancellor failed to address this in his Spring Budget, reducing VAT on public charging, from 20% to 5%, aligning it with plugging in at home, would have been useful. Especially for drivers without off-street parking and fleets who rely on mid-shift top-ups.

Convenient charging will be the most important development that needs to happen long-term and there will likely be an acceleration in the rollout of charge point facilities to provide EV drivers with easier and more reliable public charging.

As salary sacrifice continues to surge in popularity, it will continue to remain a favourable benefit to help encourage people to transition to zero-emission transport. However, with an election date looming, employers need assurance and certainty from the Government to help ensure the future of salary sacrifice schemes and continue a positive trajectory in the uptake of electric cars.