Salary Sacifice For Electric Vehicle

[Bounce]

Does anyone know how this scheme works?

iv been reading the below ;

https://www.loveelectric.cars/blog/electric-vehicle-salary-sacrifice

Does the car get leased through the company or does the person lease it?

 

[Janesy B]

You'll have to request your employer signs up and hope they accept.

"Employers simply sign up to the service (it doesn’t cost a penny!) which gives employees access to salary sacrifice prices for the entire EV market. Not only is this a great benefit for everyone who is signed up to the loveelectric salary sacrifice scheme, it also helps keep our air clean and get UK carbon emissions down.

Once a company signs up to loveelectric, their employees can find an electric car quote they are happy with on the loveelectric app, and proceed to order the car. (Illustrative examples of quotes can be found on our website). When the order is approved and signed off, the monthly cost of the electric car will be deducted from the employees monthly gross salary (gross salary = salary before tax has been applied). This is their ‘salary sacrifice’."

 

[Bounce]

You'll have to request your employer signs up and hope they accept.

"Employers simply sign up to the service (it doesn’t cost a penny!) which gives employees access to salary sacrifice prices for the entire EV market. Not only is this a great benefit for everyone who is signed up to the loveelectric salary sacrifice scheme, it also helps keep our air clean and get UK carbon emissions down.

Once a company signs up to loveelectric, their employees can find an electric car quote they are happy with on the loveelectric app, and proceed to order the car. (Illustrative examples of quotes can be found on our website). When the order is approved and signed off, the monthly cost of the electric car will be deducted from the employees monthly gross salary (gross salary = salary before tax has been applied). This is their ‘salary sacrifice’."

sounds great, but say the employee leaves mid way through the lease term, what happens to the car?

 

[Russinating]

sounds great, but say the employee leaves mid way through the lease term, what happens to the car?

Literally everything is on the website and they have a live chat function.

"We provide early termination protection as standard. This means that if your employee needs to terminate the lease early, several options are available to you. The first option would be to transfer the contract to another employee. The second option would be for us to transfer the lease to the new employer (if applicable). If neither of these options are feasible, don’t worry, we will protect the employer against any early termination charges levied by the leasing company. All your employee will need to pay is an administration charge of one month’s rental (which can be processed via their salary). Ts&Cs apply."

 

[SDK^]

sounds great, but say the employee leaves mid way through the lease term, what happens to the car?

That depends on how you leave:

For our scheme the following applies.

Under certain circumstances You will not be required to pay the Early Termination Charge (excluding any Excess Mileage Charge which shall still be payable). These circumstances are detailed below but are subject to the “Exclusions” listed below:
• You voluntarily resign (but see the first Exclusion listed below)
• You leave due to redundancy (but see the first Exclusion listed below)
• your driving licence is withdrawn for medical reasons
• your death
• You suffer disablement or mental illness
• You lose your sight; or
• You suffer physical separation of one or more limbs at or above the wrist or ankle

Exclusions

The exclusions to the above are:
• If You resign or You are made redundant in the six month period commencing on the date your Vehicle was delivered to You
• If any of the circumstances listed above were known or could reasonably be expected to be known by You on the date your Vehicle was delivered to You
• Where any pre-existing medical condition (such condition being the cause of You notifying Us that You wish to end your participation in the Scheme), was known or could reasonably be expected to be known by You when You submit your Order

2.3. Early Termination Charge

If You decide You want to end this Agreement before the end of the term You will be required to pay an Early Termination Charge and this could be a material sum. An Early Termination Charge will also be due if your Agreement is terminated as a result of your breach of its terms.
It should be noted that this is a complex calculation and will not be based upon the total amount of salary sacrifice remaining until the end of the Agreement. If You are considering terminating your Agreement You should contact us to obtain an estimate of the Early Termination Charge that will be charged before making your final decision.

The amount of the Early Termination Charge will depend upon a number of factors, and will take into account the following main elements:

• How early You return the Vehicle as this will determine the amount by which the Vehicle has depreciation
• Actual mileage on the Vehicle at the time of termination as this may attract an excess mileage charge
• The cost of repairing any outstanding damage on the Vehicle
• An administration fee of £35 plus VAT to cover the cost of processing the termination
• The estimated sale proceeds of the Vehicle, calculated in the month of termination, (which will be influenced by the strength or weakness of the used car market at that time) and the estimated costs of sale of the Vehicle


2.5. Early Termination Charge where the Vehicle is written off

If the Vehicle is the subject of an insurance write off:

• You will be obliged to continue the Salary sacrifice arrangements until such time as the insurance proceeds are paid. Where the write off was not your fault your insurer will provide You with a replacement vehicle whilst the Salary sacrifice arrangements are continuing (as long as this is provided for by your policy of insurance for the Vehicle); and

• You will be covered for any Early Termination Charge (excluding any Excess Mileage Charge which shall still be payable) by the Total Loss Protection, no matter when in the Agreement the vehicle is declared a total loss.

 

[Bounce]

That depends on how you leave:

For our scheme the following applies.

Yes but say the car is £300 a month and the contract is 36 months, and the person resigns after 3 months of having the car, the outstanding contract value is £9,900, most termination fees are 50% of the remaining contract so £4,950, trying to pass this onto an employee, which has a 4 week notice period is almost impossible to do.

 

[SDK^]

Yes but say the car is £300 a month and the contract is 36 months, and the person resigns after 3 months of having the car, the outstanding contract value is £9,900, most termination fees are 50% of the remaining contract so £4,950, trying to pass this onto an employee, which has a 4 week notice period is almost impossible to do.

In that scenario (employee refuses or can't pay the relevant termination fee), there is a legal process for breaches of signed contracts

 

[Janesy B]

Yes but say the car is £300 a month and the contract is 36 months, and the person resigns after 3 months of having the car, the outstanding contract value is £9,900, most termination fees are 50% of the remaining contract so £4,950, trying to pass this onto an employee, which has a 4 week notice period is almost impossible to do.

I don't really see the termination fee being that high given the criteria they list;

The amount of the Early Termination Charge will depend upon a number of factors, and will take into account the following main elements:

• How early You return the Vehicle as this will determine the amount by which the Vehicle has depreciation
• Actual mileage on the Vehicle at the time of termination as this may attract an excess mileage charge
• The cost of repairing any outstanding damage on the Vehicle
• An administration fee of £35 plus VAT to cover the cost of processing the termination
• The estimated sale proceeds of the Vehicle, calculated in the month of termination, (which will be influenced by the strength or weakness of the used car market at that time) and the estimated costs of sale of the Vehicle

But if you are thinking of leaving within 3 months it's probably not worth bothering with the scheme.

 

[glenimp617]

Think carefully about doing this. I've got my ETron on a salary sacrifice scheme through my employeer, but only because they were crazy cheap at the time.

These days they are often a very expensive way of leasing. Mine goes back in September, and have already had the call about my next car. I've ordered a Tesla direct with Tesla, which was significantly cheaper then what the salary sacrifice people could offer me.

NHS deals are usually very good though.

also, I made a big mistake in thinking that salary sacrifices reduce your overall yearly earnings from an HMRC viewpoint. It doesn't.

 

[Greebo]

Think carefully about doing this. I've got my ETron on a salary sacrifice scheme through my employeer, but only because they were crazy cheap at the time.

These days they are often a very expensive way of leasing. Mine goes back in September, and have already had the call about my next car. I've ordered a Tesla direct with Tesla, which was significantly cheaper then what the salary sacrifice people could offer me.

NHS deals are usually very good though.

also, I made a big mistake in thinking that salary sacrifices reduce your overall yearly earnings from an HMRC viewpoint. It doesn't.

Good point as going to their website i didnt think their lease rates were competitive at all but you are saving the tax and NI but no need for them to rip you off.

 

[rodenal]

As above HMRC don't care from an adjusted earnings point of view so be careful with other liabilities that are triggered by overall income.

 

[Del Lardo]

Think carefully about doing this. I've got my ETron on a salary sacrifice scheme through my employeer, but only because they were crazy cheap at the time.

These days they are often a very expensive way of leasing. Mine goes back in September, and have already had the call about my next car. I've ordered a Tesla direct with Tesla, which was significantly cheaper then what the salary sacrifice people could offer me.

NHS deals are usually very good though.

also, I made a big mistake in thinking that salary sacrifices reduce your overall yearly earnings from an HMRC viewpoint. It doesn't.

As above HMRC don't care from an adjusted earnings point of view so be careful with other liabilities that are triggered by overall income.

Could you expand a bit more on the implications please? Looking at the Octopus Salary Sacrifice scheme and their material seems to indicate that it could be quite beneficial if you are in a higher tax bracket.

Makes a Model Y about the same to lease from them as it would be to PCP from Tesla, just without the need for a substantial deposit.

 

[glenimp617]

Could you expand a bit more on the implications please? Looking at the Octopus Salary Sacrifice scheme and their material seems to indicate that it could be quite beneficial if you are in a higher tax bracket.

Makes a Model Y about the same to lease from them as it would be to PCP from Tesla, just without the need for a substantial deposit.

I'm no expert by any means, but I have learnt a few things over the last 18 months.

Obviously the biggest difference comes at the end of the lease. You have to give it back for a start, unless you ask for a price to buy it off them. They usually go to auction, but say you ordered your Tesla and wanted to keep it, they would get a sale price and let you buy it if you really wanted. The money you paid each month is lost forever though, but if it happens to be less than the cars depriciation you are quids in.

My comment regarding making a mistake with the HMRC. "Top gear maths to illistrate my point"....I rather foolishly thought that if I was paying say £500 a month, my yearly earnings would in effect drop by £6,000. HMRC don't see if that way.

Example

You earn £60k a year so are no longer entitled to any child tax credits (losing £1,680 a year)
If you bought a car on salary sacrifice costing £800 a month (12*£800=£9,600) your earnings would drop to £50,400 meaning you would get back 96% tax credits (or £134 a month)

for an EV (on a good deal), pre-tax, added back child credits, no petrol, no insurance or servcing......the car costs very little.

The reality is that HMRC still thinks you earn £60k regardless.

Benefits are that because the car payment is coming out of your wages pre-tax, you pay less a month. You also pay less into your pension if you are part of an employers scheme so think about that.

Takeaway is that it makes sense if you can find a good deal and you know the implications of the tax/pension (and if the government keeps BIK on EVs low)

...also remember the car needs to be pretty much in pristine condition when it goes back, else they'll sting you for repairs.

My E-Tron costs me around £300 a month (crazy deal at the time I know), and I used to be paying £150 a month for petrol and insurance. If my idea about the tax credits held true, I'd be driving around in a free car lol still, it's a fantastic price for me but only till this coming September when it goes back.

Oh, one major downside. If you ever wanted to end the lease early, they make you settle all the outstanding payments...ouch! so make sure it's the car you really want.

 

[Del Lardo]

Thank you. That’s really helpful.

 

[b0rn2sk8]

Think carefully about doing this. I've got my ETron on a salary sacrifice scheme through my employeer, but only because they were crazy cheap at the time.

These days they are often a very expensive way of leasing. Mine goes back in September, and have already had the call about my next car. I've ordered a Tesla direct with Tesla, which was significantly cheaper then what the salary sacrifice people could offer me.

NHS deals are usually very good though.

also, I made a big mistake in thinking that salary sacrifices reduce your overall yearly earnings from an HMRC viewpoint. It doesn't.

The biggest hidden cost is that it nukes your pension contributions, particularly something like an NHS pension because of the way it works (based on career average salary and it’s growth is indexed linked).

in the private sector most good companies will match contributions up to 7-10%. You’ll be losing that amount on any salary sacrificed which is not an insignificant amount on an expensive lease.

If you want to maintain your total pension contributions at their current rate, you’ll need to factor that into the cost. If you don’t, depending on how old you are, you could potentially missing out on the compounded growth of that money for decades.

 

[IronSpider]

also, I made a big mistake in thinking that salary sacrifices reduce your overall yearly earnings from an HMRC viewpoint. It doesn't.

The example on the website says differently??

https://www.loveelectric.cars/blog/electric-vehicle-salary-sacrifice


If Warren instead went to loveelectric to get his Honda E, he would take his gross monthly salary of £2166.67 and make a gross sacrifice of £356 every month (this is £427 minus the VAT). This means that his monthly gross pay would change from £2166.67 to £1810.67 every month.

£2166.67 - £356 = £1810.67
Following this, Warren would then be taxed on this income, £152 in national insurance and £122 income tax, meaning that his net income would be £1537.

£1810.67- (£122 + £152) = £1537
This means that for every month Warren leases with loveelectric, rather than a standard leasing company, he saves £185.

I underdstsand this might impact you pension contributions as stated previously but I don't see the benefit of this system if you don't get the reduction on your salary in the same way a cycle to work scheme does.

 

[Greebo]

The biggest hidden cost is that it nukes your pension contributions, particularly something like an NHS pension because of the way it works (based on career average salary and it’s growth is indexed linked).

in the private sector most good companies will match contributions up to 7-10%. You’ll be losing that amount on any salary sacrificed which is not an insignificant amount on an expensive lease.

If you want to maintain your total pension contributions at their current rate, you’ll need to factor that into the cost. If you don’t, depending on how old you are, you could potentially missing out on the compounded growth of that money for decades.

I dont see that as a big deal (except for some public service pensions) so long as you are aware. yes your company will be putting the minimum 3% into your pension or good ones 7-10% but that is still peanuts compared with the tax and NI savings.

Eg Lets say the car is £500 per month gross and you are a 40% taxpayer. Yes you will lose up to £50 per month going into your pension but you are saving £200 per month in tax and £10 a month (or more) in NI.

Dead easy to then pay another £50 per month into your pension out of the £210 per month you are saving on the car.

 

[Del Lardo]

The example on the website says differently??

https://www.loveelectric.cars/blog/electric-vehicle-salary-sacrifice


If Warren instead went to loveelectric to get his Honda E, he would take his gross monthly salary of £2166.67 and make a gross sacrifice of £356 every month (this is £427 minus the VAT). This means that his monthly gross pay would change from £2166.67 to £1810.67 every month.

£2166.67 - £356 = £1810.67
Following this, Warren would then be taxed on this income, £152 in national insurance and £122 income tax, meaning that his net income would be £1537.

£1810.67- (£122 + £152) = £1537
This means that for every month Warren leases with loveelectric, rather than a standard leasing company, he saves £185.

I underdstsand this might impact you pension contributions as stated previously but I don't see the benefit of this system if you don't get the reduction on your salary in the same way a cycle to work scheme does.

My understanding is that Loveelectric and Octopus (the one I was looking at) are being rather disingenuous with their statements. They are correct that you pay a reduced amount of tax per month but as HMRC does not view the salary sacrifice as a drop in income as they would a pension contribution you end up with a tax bill at the end of the year instead.

Would be good if @TheOracle can confirm?

 

[glenimp617]

My understanding is that Loveelectric and Octopus (the one I was looking at) are being rather disingenuous with their statements. They are correct that you pay a reduced amount of tax per month but as HMRC does not view the salary sacrifice as a drop in income as they would a pension contribution you end up with a tax bill at the end of the year instead.

Would be good if @TheOracle can confirm?

Yeah, on your P60 it says what you actually earn (without the car) and that's what HMRC uses. Now everything is all automated, the figures are filled in when you submit your TAX return.

 

[Kenai]

I'd have thought they include the Benefit in Kind value in your overall earnings figure when calculating whether you're entitled to things like child tax credit but they surely don't come and slap you with a massive tax bill at year end? Otherwise the entire point of the salary sacrifice is a waste of time, as you're not actually saving the tax?