An Electric Vehicle (EV) scheme is a tax efficient way for employees to have an electric car by salary sacrifice. This means a portion of the employee’s earnings, before tax, is used to fund repayments on an electric car which means that they do not pay tax on the monthly car payments. This will also save national insurance for the employer and the employee.
The scheme involves the employee signing a contract with the employer for a specified percentage/amount of pre-tax earnings to purchase the electric car. The employer will lease a car from a third party and then in effect lease it to the employee. When leasing the vehicle, the employer will need to ensure that the lease can be stopped and the car returned in case the employee leaves the business before the full term of the lease. If the lease can’t be stopped alternative arrangements should be made in advance with the employee to prevent the employer being liable to the remainder of the lease should the employee leave, this can be agreed and written into the scheme contract.
Electric cars must be under 75g/km CO2 emissions and schemes usually last between 2 to 4 years and can be used for private or business.
However, employees will of course be liable to company car tax and the employer will need to prepare P11D forms and therefore pay Class 1A national insurance on the benefit amount.
Also, please be mindful when discussing the amount of salary sacrifice with the employee as the salary sacrifice must not reduce an employee’s cash earnings below the national minimum wage.
Shelly O’Neill
Tax Advisor
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