If you have been thinking about switching to an electric car but are worried about the cost, talk to Bill Hopkinson. Until four months ago, the sales and marketing director was driving more than 30,000 miles a year in a diesel BMW and spending about £800 a month on lease payments, fuel, insurance and maintenance.
Fast-forward to today, and he is now behind the wheel of a new, fully electric Audi Q4 e-tron. His total monthly expenditure on the car, including the use of public charging points, has fallen to £611 – meaning he is on course to save more than £2,200 a year, while, at the same time, slashing his carbon footprint.
How has he done it? By making use of “salary sacrifice”.
For years, employees have had the chance to get a new bicycle or childcare vouchers through workplace salary sacrifice schemes, saving as much as 40% of their value.
However, in recent years, enlightened employers, keen to reduce their carbon emissions or reward longstanding workers with a great perk, have woken up to the fact that there are huge benefits in offering staff electric cars in the same way.
Higher-rate taxpayers – those earning more than £50,270 – should save about £2,000-£3,000 a year on the cost of leasing a brand-new electric car. For those earning less than that, the savings are closer to 30% but still worth having.
The first thing to note is that there is no obligation to use the car for work, although it appears employers whose staff do drive as part of their roles are more likely to offer this option.
Frankly, the deal is so good that if you are in the market for an electric car, don’t even think about going ahead with a purchase until you have asked your employer whether it offers one of these schemes – and if it doesn’t, why not?
You may want to consider getting together with other like-minded employees to make a pitch to your bosses that it would be a great staff recruitment and retention perk, and good PR, for them to sign up to one.
“I’ve always been interested in cars and have been watching the development of electric cars and the associated charging infrastructure, trying to work out when to jump in,” says Hopkinson, who lives in Derbyshire.
“The cars now have a good enough range, and the charging network is finally there.
“It very much felt that now was the time to get into an electric car, and if you go down the salary sacrifice route, it’s a financial no-brainer.”
He says his employer, Birmingham-based Intercity Technology, used a firm called the Electric Car Scheme to manage the process on its behalf. It started by offering it to him and another director as a pilot scheme, with the plan to make it available to the rest of the field sales team and other staff in the future.
“We wanted to find a way to reduce the company’s environmental impact, and this is very much a part of that move. You can’t be burning that much fuel a year in this day and age,” Hopkinson says.
“Previously, I had to arrange insurance and pay for diesel and for the maintenance of my car. With the Audi, I have taken the full service package. That means everything is taken care of – even the charging – all paid for from my salary prior to it being taxed.
“I’m saving about £200 a month to drive a zero-emissions car. Who wouldn’t want to do that?”
Hopkinson’s Audi will do about 220 miles between charges and, while longer trips take a bit of managing, he has no regrets about switching to all electric.
“I make a lot of similar journeys – to our other offices and clients – and you get to know the chargers that work and deliver the fast charges (80% in 45 minutes) as advertised, and the ones that annoyingly don’t come close,” he says.
So how does this all work?
These arrangements operate in a similar way to the cycle to work scheme that has been used by more than a million people since its launch, except that, in most cases, the employer leases the car on the employee’s behalf, usually over three or four years.
The lease cost – typically about £500-£600 a month – is then deducted from the employee’s gross, or pre-tax, income. Because tax and national insurance are levied on what is left, the employee gets to keep more of their gross salary.
Jonathan Watts-Lay, the director at the financial advisers Wealth at Work, says this has arguably become the most cost-effective way to drive an electric car.
“Leasing in this way gives higher-rate taxpayers a saving of 40% in income tax and 2% in national insurance. Employees who pay tax at the basic rate can make a saving of 20% in income tax and 12% in national insurance,” he says.
Watts-Lay says that employees gaining an electric car in this way still face a 2% “benefit-in-kind” tax charge but this is a fraction of the bigger savings, or the amount of tax that drivers of petrol cars pay, which can be up to 37%.
Given the savings on offer, it is no surprise that drivers are rushing to take advantage of these schemes where they are available.
The biggest problem most people will encounter is persuading their employer.
Smaller companies have often been reluctant, partly because they are the one leasing the car, and the payments still have to be made if the employee leaves, dies or goes on maternity or paternity leave.
However, just as in the cycle to work scheme arena, a growing number of companies now offer to manage the scheme on behalf of the employer.
There are more than a dozen of these firms out there, with others including elmo, Octopus Energy, loveelectric and Zenith.
“We are here to make it hassle-free, risk-free and cost-free for businesses to pass on these savings to their employees. Our aim is to take away all the reasons why an employer thinks they don’t want to offer cars in this way,” says the Electric Car Scheme’s chief executive, Thom Groot.
“We source the cars by comparing all the best deals across the market and deliver a one-stop shop. Employers pay us a fee but this will be covered by the tax and NI savings that they make, and we do the rest.
“If the employee unexpectedly leaves, and no one else at the firm wants to take over the car, we will cover the early repayment fees, which can be many thousands of pounds. Among the 1,000 cars or so we have provided this way, it has only happened a handful of times.
“By pooling the risk among the companies we supply, we cover the loss, meaning it doesn’t fall to one firm,” he adds.
Before you sign up to one of these schemes, there are a few factors to consider. There may be implications for your pension, particularly if you are close to retirement.
If you leave your job during the term, some agreements will impose an early termination fee. Check what this will be before you sign – and check what will happen if you go on parental leave.
What it costs – an example
An employee wanting to get their hands on the Electric Car Scheme’s biggest seller, the Tesla Model Y, would pay about £677 a month over four years with an assumed 10,000 annual mileage if they took out a standard lease.
However, if they go down the salary sacrifice route, our higher-rate taxpayer would pay £281 a month less tax and national insurance. They would have to pay £42 a month benefit-in-kind tax, leaving them paying £437 a month – a £240-a-month saving, worth £2,880 a year, or £11,520 over the lease’s four-year term.
