As the legislative landscape shifts, it's crucial for businesses and employees to keep pace with the latest changes. The UK government's recent updates to National Insurance Contributions (NIC) and the National Minimum Wage (NMW) in the 2023 Autumn Statement bring significant implications, especially for those engaged in EV salary sacrifice schemes.
In this article, we cut through the complexity of these changes to provide clear, actionable insights on how they affect your company's car leases and your financial planning.
National Insurance Contributions reduction
The snapshot: From the 6th of January 2024, Class 1 National Insurance Contribution (NIC) for employees between the Annual Threshold and Upper Earnings Limit will decrease from 12% to 10%.
The breakdown: Currently, employees pay a NIC rate of 12% on earnings between £12,570 and £50,268 and 2% on earnings above this threshold. Effective from the 6th of January 2024, this change will decrease the initial rate to 10%. This adjustment directly influences the savings generated through salary sacrifice schemes, as the NIC forms a part of the overall cost calculation.
The impact: The reduction in NIC rates means that employees will pay less tax overall, but they will see a slight difference in savings available through our salary sacrifice scheme. It's important to emphasise that the real-life impact on salary sacrifice savings will be minimal, and employees will still enjoy the overall lower tax requirement. Our salary sacrifice scheme remains a highly cost-effective route to accessing electric vehicles.
National Minimum Wage increase
The snapshot: The National Minimum Wage (NMW) will rise from £10.42 to £11.44 on the 1st of April 2024.
The breakdown: It is the employer’s responsibility to ensure that their employees stay above the NMW after their salary deductions. To assist with this, we've have a dynamic filtering system in our app, showing only those lease options that will keep your employees' salaries above the NMW.
This filtering is particularly relevant for employees earning less than £30,000 annually. However, those earning at least £28,500 per year will still find a variety of options, with salary deductions not exceeding £500 per month. Additionally, reloved – our marketplace for used electric vehicles – provides even more choices, making the switch to electric vehicles accessible and affordable for a broader range of salaries.
The impact: The upcoming rise in the NMW, will affect the threshold of earnings required post-salary deduction as employees will need to earn more to stay above the NMW after their car lease deductions. This change could temporarily limit the variety of car options available in our app, especially for employees with annual earnings below £30,000. As salaries adjust to the new NMW, this limitation is expected to be a short-term impact.
What you need to do: It is the employer's responsibility to ensure that your employees are paid above NMW. If you currently have a salary sacrifice scheme in place, we strongly recommend you thoroughly review each team member's payslip with an ordered or delivered car to ensure they do not fall below the new NMW threshold.
For current and future loveelectric clients, we can implement an additional buffer above the NMW for your employees within our app for your peace of mind and to futureproof against other potential NMW increases.
Navigating the complexities of financial changes can be challenging, but with the right information and support, it becomes a seamless process. The upcoming adjustments to NIC and NMW are more than just legislative updates; they represent a dynamic shift in how businesses manage employee benefits and salary sacrifice schemes.
As your dedicated partner in this journey, we remain committed to keeping you ahead of the curve, ensuring that you and your employees continue to benefit from our cost-effective EV salary sacrifice scheme. With these changes on the horizon, rest assured that we are on the pulse, ready to adapt and guide you through a landscape that's constantly evolving.
Remember, we're here to support you every step of the way - because when it comes to the future of your mobility and financial planning, staying informed and proactive is key.