Alphabet GB has urged the Government to “carefully consider” any potential changes to salary sacrifice for cars to stop the industry moving into an ‘EV recession’.

The electric share of salary sacrifice schemes is close to 100%

The topic has been thrust into the headlines after a report from the Resolution Foundation think-tank called for changes as it claimed that salary sacrifice schemes benefit higher- and additional-rate taxpayers most.

Since then, speculation has been mounting that the Chancellor will consider changing or even axing sal-sac for cars in the Autumn Budget as part of “tough decisions”.

Salary sacrifice, also known as salary exchange, is a long-standing tax-efficient benefit that’s been integral in helping employees to lease an electric vehicle by agreeing to give up a proportion of their salary, saving on tax and NICs while also saving employer NICs.

It’s been pivotal in driving the switch to electric cars, accounting for a major share of new EV registrations.

The latest BVRLA Leasing Outlook report, containing figures for Q2 2024, shows that the electric share of salary sacrifice schemes is close to 100%. By comparison, the EV share of new business contract hire agreements is in the region of 70%. And across the whole of the new car market in the first half of 2024, fully electric cars accounted for 16.6% of purchases, according to SMMT data.

Alphabet GB has warned that any changes made by the Government could impact the perceived or actual benefit of salary sacrifice.

Caroline Sandall-Mansergh, consultant and channel development manager at Alphabet GB, said: “It cannot be underestimated the advantages that salary sacrifice schemes have to help people lease a new zero- or lower-emission vehicle.”

The BVRLA has also refuted that the benefits of salary sacrifice are consigned to higher earners.

While employees can’t enter into a salary sacrifice scheme if the arrangement would reduce their take-home pay below the national minimum wage – something Fleet Evolution has called for change on – the BVRLA says salary sacrifice vehicles are helping to democratise access to zero-emission motoring.

Toby Poston, director of corporate affairs at the BVRLA

Toby Poston, director of corporate affairs at the business group, went on: “Our data shows that the average EV provided through salary sacrifice schemes is cheaper than the average EV. 52% of salary sacrifice drivers are basic-rate tax payers and over 50% are female. They are spread throughout the UK, with over 50% of them working in the health and social work sector.”

He also spotlighted that salary sacrifice provides an easy, risk-free comprehensive benefit for employees and employers. The car is owned by the lease company and leased to the employer who makes it available to the employee in exchange for a reduced salary.

This means that, crucially, the risk of vehicle depreciation is covered by the leasing firm – a particular benefit when used EV values have fallen 50% over the last 24 months.

“This makes the package easy, accessible and relatively risk-free for the employees at a time when used electric vehicle values are slumping.”

Changes to salary sacrifice could impact government’s own net zero targets

With Chancellor Rachel Reeves now talking about a £40bn funding gap, even more alarming than the £22bn “black hole” previously mentioned, there is widespread speculation on what taxes could be changed or introduced in both the Autumn 2024 and Spring 2025 Budgets.

But despite the headlines, the outlook for salary sacrifice and whether it will be ringfenced from any changes is not known yet. According to The Telegraph, officials from the Treasury have discussed the financial impact of salary sacrifice schemes with members of the British car industry in August.

There are also concerns about a hike to employer National Insurance, potentially levying this on the salary sacrificed, which would hit employers hard.

However, those in the industry say no indication has been given of what’s due in next week’s Budget.

Caroline Sandall-Mansergh, consultancy and channels development manager, Alphabet GB

Alphabet has warned that any changes that the Government makes could impact the perceived or actual benefit of salary sacrifice.

Latest BVRLA figures indicate a 59% year-on-year rise in salary sacrifice numbers, supporting industry consensus that growth continues to be spectacular, and may be even higher, with a feeling that some cars supplied through framework agreements to public sector customers are being recorded as business contract hire.

Alphabet has also pointed out the impact to corporate emissions and the Government’s net zero target if salary sacrifice is changed.

Sandall-Mansergh stated: “If employees are doing business miles or commuting to and from work, it will have a positive impact on a company’s carbon emissions’ reporting, which most companies will be required to disclose from next year.

“If you’ve got a scheme where you’re actively encouraging employees into zero or lower carbon emitting vehicles, it’s a major benefit to the company, especially those that are actively pursuing net zero targets. Salary sacrifice is an enabler to making that possible, so any adverse changes that make schemes less attractive are bound to have repercussions, which will contravene with the Government’s own targets,” she added.

Finally, Alphabet has warned the Government that any changes to salary sacrifice would hit carmakers already struggling to hit exacting zero-emission vehicle sales targets under the ZEV mandate.

Sandall-Mansergh said: “The automotive industry needs as much government support as possible to help manufacturers meet their vehicle emissions targets over the next five years. Maintaining the current level of benefit through salary sacrifice, or increasing the threshold for the expensive car supplement, will go a long way to help the industry and the UK achieve its carbon reduction goals.”

She added: “For companies that are worried about administering a salary sacrifice scheme, help is at hand through your leasing company, who can offer advice and assist with the administration of the scheme.”