Electric Car Salary Sacrifice: A Guide to Tax Bracket Savings

Taking out an electric car lease via salary sacrifice is the most cost-effective way of getting behind the wheel of a zero-emissions vehicle.

There’s no upfront deposit. Insurance, maintenance and servicing is included. It’s completely hassle-free.

Due to the way salary sacrifice works, the amount you can save on a lease is directly affected by your salary and subsequent tax bracket.

Whether it be 20%, 40% or 45% - we’ve outlined some examples of what each tax bracket means for you and how much loveelectric could help you save on an electric car lease. 

Regardless of your tax bracket, our employee benefit is a “no-brainer” - not our words - but one of our hundreds of happy motorists. Why not join them and get on the road for up to 60% less?

Salary Sacrifice & Benefit in Kind Explained

At loveelectric, our salary sacrifice scheme is just like the cycle-to-work scheme – but for EVs. Employers lease a car on behalf of an employee via the company and, each month, the employee pays for the lease using a portion of their gross salary. 

In return, employees drive away in a brand new, fully insured, electric car.

When employers offer their employees a benefit in place of monetary compensation, HMRC implements a tax on that benefit - the Benefit in Kind (BiK) tax. With company vehicles, the value of this tax has been directly linked to the CO2 output of the vehicle. 

During 2020/21, the BiK rate for all-electric and hybrid vehicles (producing between 0-50g/km CO2) was 0%. However, with electric cars booming in popularity, HMRC introduced a 1% BiK rate in 2021/22. This increased to 2% in 2022, where it’ll remain until 2025 before rising by 1% year-on-year until 2028.

This incredibly favourable BiK rate ensures electric cars will be an ultra-low cost, environmentally conscious solution for employees and employees alike for years to come.

A Brief Outline of Tax Bands

It’s important to note that Scotland’s Income Tax structure differs slightly to the rest of the UK. We’ve outlined the tax brackets below and will be using the England, Wales & Northern Ireland tax rates for demonstration purposes. However, due to the marginally higher tax rates in Scotland, the savings available via salary sacrifice will be greater. 

So - even better news for our Scottish readers. Why not start your EV journey now?

Up to £12,570 Taxable Annual Income | 0% Tax rate

Otherwise known as the Personal Allowance, any income up to £12,570 isn’t subject to taxation. Once you earn over £12,570, any income above that figure is subject to different taxation bands of which we outline below.

£20,319 National Minimum Wage Annual Income | 20% Tax rate 

If an employee is over 23 years of age, then they’re entitled to the National Living Wage - currently £10.42 per hour. If we assume a full-time working week of 37.5 hours and a standard 52 week year, that would be equal to a salary of £20,319 per annum.

We are bound by law to restrict anyone taking out a lease that would bring their pay below National Minimum Wage – so you’ll never take out a lease with us that would drop your annual salary below £20,319. 

This mechanism is built into our product from the first instance. When a company signs up, employees get access to the loveelectric app, where they can browse our entire stocklist and place an order. The app automatically filters makes, models and contract options that do not meet the National Minimum Wage criteria for the designated salary. That way there’s no disappointment - anything you can see in-app is available to order.

£12,570 - £50,270 Taxable Annual Income | 20% Tax rate | Savings between 30-50%

Due to the National Minimum Wage requirements, we strongly recommend drivers have a minimum annual salary of £27,000. This allows the choice between a few different vehicles as well as the ability to accommodate the necessary gross salary deduction.

This salary range puts an employee in the 20% tax bracket, where savings range from 30% to 50%. 

Here’s an example of someone who earns £40,000: that’s just above the UK average salary for a full-time role of £38,181 (ONS, 2021).

• Simon is 40 years old, earns £40,000 per annum and lives in Aberdeen. He has a clean driving licence.
• Gross cost for a Fiat 500 electric lease is £523 per month. This is the amount Simon sacrifices of his salary for the lease, which is taken pre-tax.
• Included in the lease price is fully comprehensive insurance, servicing, maintenance, breakdown cover and early termination protection.
• As his gross monthly salary has been reduced by £523, he pays less Income Tax and a smaller National Insurance contribution.
• The net cost for the lease is only £326 per month, demonstrating a 38% saving from the original lease price. This is the real terms deduction in Simon’s take-home pay.

Want to save like Simon? Get started here.

£50,271 - £150,000 Taxable Annual Income | 40% Tax rate | Savings between 40-60%

Once income exceeds £50,271 it becomes subject to the 40% tax rate, savings for an electric car lease in this bracket range between 40% - 60%.

Let’s have a look at another example - this time for one of our most popular electric cars, the Tesla Model Y. 

Here’s a detailed rundown of a 36 month lease term with a cap of 10,000 miles per year, for an employee in the 40% tax bracket earning £55,000 per annum.

As demonstrated, the standard lease cost for a Tesla Model Y is £889. However, if you were to take a lease out with loveelectric via our employee benefit, the net price is only £450/month - illustrating a 59% saving. 

Fancy a Tesla Model Y for only £450/month? Get started here.

This monthly price includes; servicing and maintenance (including tyres), fully comprehensive insurance (with the option to add another named driver at extra cost) and roadside assistance/accident management for if the worst is to happen.

Most importantly, our lease prices aren’t artificially inflated. Some salary sacrifice providers charge double rent for the first 6/12 months, passing the cost of early termination risk onto the driver. With loveelectric, the monthly price is the same across the entirety of the lease - no nasty surprises.

£105,000 - £125,000 Taxable Annual Income | 40% Tax Rate | Savings between 55-60%

To qualify for the maximum saving with loveelectric, an employee must be in the 40% tax bracket and earn between £105,000 - £125,000. They must also be paid via PAYE. 

loveelectric’s electric car benefit allows employees to get a huge discount on a lease thanks to tax savings. As the saving is based on a combination of their tax bracket and annual income, there’s a so-called ‘sweet spot’ - whereby the savings on a lease are maximised. With the inclusion of fully comprehensive insurance, this can be around 64%.

Once an employee’s adjusted net income is above £100,000, the Personal Allowance decreases by £1 for every £2 the salary is over that threshold. In practical terms, this results in a Personal Allowance of zero for an income of £125,140 or above.

With the tax-free Personal Allowance dramatically reduced once a salary reaches over £100,000, loveelectric’s employee benefit is a great way to maximise savings. By taking out an electric car lease with loveelectric, the gross deduction brings the employee’s salary down enough for them to qualify for the tax free allowance again. This maximises their net take home pay, whilst accommodating the lowest price for an electric car.

In the income ‘sweet spot’? Getting an electric vehicle is a real no-brainer. Get started here.

Let’s have a look at another example.

• Jennifer is 40 years old, earns £110,000 per annum and lives in Aberdeen. She has a clean driving licence.
• Gross cost for a Tesla Model Y lease is £830 per month. This is the amount Jennifer sacrifices of her salary for the lease, which is taken pre-tax.
• Included in the lease price is fully comprehensive insurance, servicing, maintenance, breakdown cover and early termination protection.
• As her gross monthly salary has been reduced by £830, she pays less Income Tax and a smaller National Insurance contribution. It also brings her back under the Personal Allowance threshold, resulting in a bigger saving.

The net cost for the lease is only £303 per month, demonstrating a huge 64% saving from the original lease price. The net figure of £303 is the deduction Jennifer will notice in her take-home pay.

Over £150,000 Taxable Annual Income | 45% Tax rate | Savings between 45-50%

For those of the estimated 321,000 people in the UK to be earning more than £150,000 per annum, their tax rate is 45%, resulting in a saving of between 45-50% on an electric car lease. 

Let’s imagine that Jennifer had a pay rise and began earning £155,000 per annum.

• Gross cost for the Tesla Model Y remains the same at £830 per month.
• Her gross monthly salary is reduced by £830, however it doesn’t reduce the amount enough to qualify for the Personal Allowance, resulting in a smaller saving.
• The net cost for the lease is only £436 per month, demonstrating a 48% saving on the original lease price.

Tax & Income FAQs

Do bonuses/commission pay-outs affect my savings?

Yes. However, when browsing for an electric car with loveelectric, we recommend entering a conservative salary estimate. It’s better to be pleasantly surprised by a large commission and a reduction in the net cost of your lease, as opposed to a dry-spell and see your basic salary stretched.

What’s the difference between net price and gross cost?

Net price: The net price is the cost of the lease once Income Tax and National Insurance Contributions have been taken from your monthly pay. This figure is determined by your salary and tax bracket. The net price figure is essentially how much your take home pay will be deducted by, after entering the lease agreement.

Gross cost: This is the standard lease cost for the electric vehicle. This figure is taken from your monthly wage pre-tax, which then determines how much Income Tax and National Insurance Contributions is due on the remainder of your gross salary. 

Can I access the scheme if I’m self-employed?

Unfortunately, the loveelectric employee benefit is only available to employees paid via PAYE.