It counts as a company car even though I pay for it myself through salary sacrifice, so yeah it does attract BIK.
Do you know of another method which lets me get tax savings but without the BIK?
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Thinking of getting an EV
- Thread starter danlightbulb
- Start date
It counts as a company car even though I pay for it myself through salary sacrifice, so yeah it does attract BIK.
Do you know of another method which lets me get tax savings but without the BIK?
Soldato
The payment for the vehicle is taken from your gross salary, and so reduces your tax liability.
E.g. you pay £500/month for the vehicle, your gross salary drops by £500, meaning you no longer pay tax on that £500. Great, you've just saved yourself £100-200 in tax!
Except this is where BIK kicks in; the value of the benefit is calculated as a % of the vehicle's (list price + options + VAT) - the % is what is set by the govt., and for EVs is currently 2%.
So on a £40k car, the value of the benefit would work out as £40,000 * 0.02 = £800/year
Your tax liability is then calculated using your personal tax band, so for a basic rate tax payer, you'd be liable for £160, and for a higher rate £320
On a monthly basis, the net cost of the £500 vehicle would therefore be:
20% tax band:
£500 cost - £100 tax saved + £13.33 BIK = £413.33
40% tax band:
£500 cost - £200 tax saved + £26.67 BIK = £326.67
If the BIK rate was put up to 10%, then the tax liability would increase massively:
£40,000 * 0.1 = £4,000; £800/year or £66.67/month for a basic rate tax payer, or £1,600/year or £133.33/month for higher rate.
It would still be cheaper than paying £500 for the car, but on our scheme at least, the gross monthly costs are quite a bit higher than you could get privately, and are only competitive due to the tax savings.
Edit before someone pulls me up on it: for the sake of simplicity, I've not accounted for NI savings in the above examples. The savings will be therefore be a bit higher, as the NI liability would be reduced by the £500 salary reduction, but it doesn't affect the BIK liability.
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Ive been looking into the MG5 (although likely the pre face lift to save some cash) so this has all been really good and interesting stuff. Just need to find a 61Kwh with reasonable mileage for a good price now looks like ~13-14k, where as the facelift is another 4-5k. Is there anything Im really missing by not going for the newer model?
No and that’s by design and completely intentional.
Or to put it another way, the government doesn’t usually write tax to allow people not to pay it and for the most part it goes out of its way to close down any unintended loop holes as quickly as possible.
Soldato
The newer one is a much nicer car tbh, the old one also has no app, and as far as I'm aware no way to schedule charging - that means you can't make use of cheap overnight tariffs unless you have a smart charger
This. I know a guy who got one and was at first OK with no app. It didn’t take long for him to realise the benefits of an app were worth having. He had no smart charger.
Scheduled charging
Preconditioning
If you can live with the older car, then yes you will save money.
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I need to check my salary sacrifice quote to see how that is calculated out. I don’t remember seeing BIK line time in it. It was a straight gross payment income tax and NI saving.
You are correct that salary sacrifice gross values are normally much much higher than what you can get from private lease.
I suspect this is due to lease companies making much tax savings on their end as well.
It’s because there is less competition for the sale.
They don’t have to compete with rival leasing companies, brokers and dealers. As you are benefitting from the tax savings, they can afford to take extra margin on the sale as they still work out the cheapest.
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I do wonder if the salary sacrifice company is inflating the cost of the car, but it's hard to tell. The salary sacrifice scheme is no deposit, and includes insurance, VED, all servicing and maintenance, breakdown cover, tyres. If I go that route I would try and do a gross cost comparison to see what the underlying car cost is.
Yeah understood, it just sounded like pc-guy had another option.
Yeah understood, it just sounded like pc-guy had another option.
Soldato
You don't pay your BIK to the lease company, that is a separate "arrangement" with HMRC which should be done by your payroll
Exactly. You'll find that your 1257L tax code is now a lower number = less tax free allowance = you pay tax on more of your salary.
If that isn't the case then it has been overlooked by HMRC or your employer and will likely catch up with you. I know this from experience as my paternity leave screwed up my company car tax and I didn't pay it for 18 months. When it finally caught up I ended up with a negative tax code...
TBH I'm amazed anyone would have opted for a salary sacrifice scheme without knowing that. It puts new meaning on salary sacrifice being touted as a "no brainer". The current BIK rates are the whole reason they are worth going for at the moment, and also the reason that post 2028 they rapidly won't be quite so appealing.
Soldato
It's because salary sacrifice is pushed as an option with no downsides by the lease companies (and also some employers who sing its praises as a great benefit).
Sure it has it's place, and if you go in with your eyes open and knowing all the facts, it can definitely save you money and is certainly convenient, but there are also a lot of pitfalls which can catch you out if you aren't aware of them.
Student loan contributions are another one - as it decreases your gross salary, it also decreases your student loan liability which can be good if you have no intention of paying it off, since it will save you even more per month, but if you are close to paying it off, and just want it gone, then it means that will take longer (obviously you can make manual payments if that's the case, but who wants to do that?
)It would take a lot of miles to get ROI on the extra £4-5000 for the newer car though. I do about 12,000 miles a year and at a rough guess it would take 4 years of purely charging at home to make up the difference in car (granted id also have a nicer car out of it). (I dont have a home charger at the moment though can charge at work though although not incredibly cheaply). Considering home charger but id have to knock down a wall and build a drive way so need to figure out the ROI on that.
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I thought VAT should be added on the company car lease to make some apples against apples with a private purchase but (as born said) the economy of scale/exclusivity lease company gets keeps price down too
If you lease an older car , that is still under a salary sacrifice agreement ? even though insurance/maint is down to you; usually have some company constraints on car age, too.
[
test drive will show if you feel the weight/inertia difference in an ev at speed, on a bend. ... did it
]
Can't do that on my scheme.
Soldato
30p standard rate vs 7p standard rate, so ~23p/kwh or 6.4p/mile difference @3.6mi/kWh...
So yeah, about 78k miles!
I'd still take the newer one though, having driven both, it just feels a lot more premium (comparatively, it's still a "cheap" car at the end of the day...)
Soldato
Which test drive did you experience this on?...
Do all SUV style cars feel like you're sitting in a van? My current car is old, but it feels like a snug fit and my feet/pedals are out in front of me. I sat in the Peugeot 3008 last night and it was like I was perched up on a stool. I don't mind the exterior styling and the chunky designs of SUVs, but I would prefer a more 'fitted' driving position?
Basically yes.
Soldato
Unfortunately this is one of the major downsides of most EVs - because the battery is under the floor, they have a very elevated driving position.
Hopefully as the technology matures, designers will come up with ways of working around that, but ultimately you've got to put a big chunk of heavy metal and circuitry somewhere in the car - under the floor is the logical position to keep it out of the way and also maintain stability due to the low centre of gravity.
Sorry to be the bearer of bad news, but the MG5 isn't actually much better in this respect!
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