The first Labour Budget in 14 years has been met with a mixed reaction. Initial polling from YouGov has the British public divided, while feedback from the private sector has been much more partisan – with the UK economy going in reverse for the first time in a year.
The problem for industry? A 1.2 percentage point hike in employer national insurance contributions (NICs) – alongside a 45% reduction in the NI payment threshold – has businesses staring down the barrel of new and potentially substantial cost pressures.
So, to solutions. An electric vehicle (EV) salary sacrifice scheme just became more valuable than ever to your business. With Chancellor Rachel Reeves reaffirming the government’s support for EV transition, salary sacrifice now offers greater cost savings on your NI liabilities and represents an even more vital asset in attracting and retaining talent.
We’ll look into why below, but if you’d like to know how a HFS salary sacrifice scheme could work for your business, book a free consultation with us today.
What Budget measures affect EV salary sacrifice schemes?
The Chancellor stated the government’s desire to “support the uptake of electric vehicles”, and this was reflected in several decisions made in the Budget.
National insurance contributions
Employer NICs have been raised from 13.8% to 15%, along with a reduction in the threshold from which NICs must be paid from £9,100 to £5,000. The move looks to raise £25bn per year towards public services and is the most considerable chunk of the annual £40bn increase in funds Labour has targeted to address the “black hole” left by the recently departed Conservative government.
Smaller businesses will benefit from an increase in the Employment Allowance from £5,000 to £10,500 come April 2025, but this policy change is undoubtedly the riskiest of Reeves’ Budget. Additional financial pressures arising from the increased NIC liability will likely suppress profits, reduce ‘real wages’ and reduce recruitment – concerns laid out by the Office for Budget Responsibility, Institute for Fiscal Studies and Resolution Foundation.
Benefit-in-kind rates
Company car tax, more formally known as benefit-in-kind (BiK), will remain relatively low for EVs until 2030 at least, rising by 1% each year until 2028, after which it will rise by 2% yearly until 2030 – a proposal that has been largely welcomed by the BVRLA. Annual EV BiK rates will therefore be as follows:
2024/25: 2%
2025/26: 3%
2026/27: 4%
2027/28: 5%
2028/29: 7%
2029/30: 9%
For comparison, maximum BiK rates in the same period for hybrid and ICE (petrol and diesel) vehicles will rise to 19% and 39%, respectively. The limited increases for EVs mean they remain tax-efficient for employees, promoting the accessibility of driving an electric car via salary sacrifice.
Additional points affecting EVs
- Vehicle Excise Duty (VED): EV drivers will be subject to VED (road tax) for the first time in 2025. However, this will be limited to £10 in the first year of ownership to encourage the transition to electric.
- Capital allowances: 100% First-Year Allowances (FYA) – which permit businesses to deduct the total purchase price of any zero-emission vehicle from their taxable profits – have been extended through to April 2026.
- Charging point infrastructure: Labour will invest over £200m in 2025/26 in charge point rollout.
Did EV salary sacrifice schemes become even more viable post-Budget?
Yes. With employers looking for effective ways to manage the anticipated additional cost pressures arising from the Budget, the cost benefits of a salary sacrifice scheme have not only become more relevant, but have also increased. Here’s how.
Alleviate NI pressures and offset other costs
Tax savings have always been one of the biggest selling points of implementing a salary sacrifice scheme into your business, but rising NICs will highlight them even further.
In an EV salary sacrifice scheme, employees agree to forego part of their gross (pre-tax) salary in exchange for use of the vehicle. This reduction in gross salary lowers the employer’s NIC liability, as NIC is calculated on the employee’s gross earnings.
With NICs increasing from 13.8% to 15%, employers will now save more via salary sacrifice – savings which can be used to offset rising operational costs elsewhere.
Enhance your employee attraction, retention and satisfaction
With much of the negative noise around the NIC hike surrounding a potential ‘tax on jobs’ which could induce stunting of real wages and recruitment, salary sacrifice offers an employee benefit worth talking about.
Labour’s commitment to continuing viable electric transition through low BiK and VED rates means EVs are still a highly attractive prospect – particularly through salary sacrifice, which remains the most cost-effective way to get behind the wheel of an electric car. Indeed, until 2028 at least, users can expect to continue to save between 30%-60% off the cost of a standard EV lease via the scheme.
At a time when it may be difficult to offer notable real wage increases or attractive financial packages to existing and potential employees, having a scheme that offers users access to tax-efficient, cost-saving electric driving could be a real ace up the sleeve for retaining and attracting talent in your business. Most critically, this can all be delivered while remaining cost-beneficial or, at the bare minimum, cost-neutral to you.
Accelerate your green credentials
The government’s continued emphasis on EV adoption means you can use a salary sacrifice scheme to help work towards your corporate social responsibility (CSR) objectives while enjoying the cost benefits and an improved sustainability profile – which could help attract talent among an increasingly green-minded workforce.
There’s never been a better time to get on board with salary sacrifice
Could a salary sacrifice scheme help mitigate your NI burden while enhancing key areas of your business profile? In the wake of the Budget changes, there’s never been a better time to get involved.
With Hippo, you can get all of the above in a low-risk, completely outsourced package. Want to know more? Book a free consultation today.