The financial standing of electric vehicles as company cars and their attractiveness in salary sacrifice schemes is to be heightened by the recently confirmed increase in National Insurance (NI) contributions.

The Arval data shows the NI rise strengthens the financial case for EVs as company cars and increases their attractiveness on sal sac schemes

New data from Arval highlight the impact of the increase on employers’ National Insurance Contributions paid on Benefit-in-Kind (BiK) taxation for company cars and show that it strengthens the financial case for EVs.

Richard Cox, Arval UK consultant, said: “The change in NI improves the position of low carbon vehicles relative to others, so while there is an increase for EVs, it is much lower than for PHEV and much, much lower than for ICE.”

Typical figures produced by Arval show that for a £40,000 internal combustion-engined (ICE) car, the monthly increase in employers’ NI paid on BiK taxation will be £11.67, whereas for a £45,000 petrol hybrid electric vehicle (PHEV), it will be £5.62, and for a £50,000 electric vehicle (EV), just £1.04.

Cox added that, as a general principle, the biggest impact of the NI increase for employers and employees is on salaries, where there is a combined 2.5% increase in the tax charge.

In contrast, for company cars it’s just 1.25%, because employees do not pay NI on benefits.

“This is good news for company cars in the sense that the increase in NI is smaller than for cash options, although again it is important to underline that the amounts involved are quite small when measured on an individual basis.

“The amounts involved for employers are not enormous – an additional 1.25% on NI is barely more than the increases we see in BiK rates each April, but will certainly add up over a large fleet.”

He added that the increase would have the least effect on companies who use a whole-life cost (WLC) model for constructing their choice lists.

“A WLC-based approach means that the NI increase will be automatically absorbed because it is part of the defined company car budget, although it does marginally reduce the buying power of employees unless the employer decides to make a compensatory increase.”

Arval’s data on the NI rise also shows that EVs become more attractive on salary sacrifice schemes, especially for employers.

Cox explained: “Employers will save on NI payments on salaries alongside a much lower charge on the BiK element, while employees will save more NI although there is no corresponding NI charge on the BiK.”

As such, the increased NI rate is expected to further drive salary sacrifice take-up for EVs.

“We are currently seeing a considerable increase in EV salary sacrifice schemes and this new development only adds to their attractiveness.”

Arval sample employer calculations

Fuel Type                                ICE                               PHEV                           EV

Note: The different prices of EVs in this example are intended to represent typical list prices for three comparable fleet vehicles using different forms of power.