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Updated on 12 November 2024 to reflect most up to date Benefit in Kind announcement.
The UK Government confirmed in their 2024 Autumn Statement that their world-leading, ultra-low Benefit in Kind (BiK) tax rate for EVs will remain at 2% until April 2025 before rising by just 1% each financial year until 2028 and then 2% each financial year until 2030. This minor rate increase will enable thousands of basic taxpayers across the country to access a new electric car for the first time.
In this blog, we illustrate how the new BiK rate will affect EV drivers on a salary sacrifice lease – and, because of the slight increase, how salary sacrifice continues to be the most affordable way to access a new electric car.
We understand why getting a new car is one of the biggest decisions our customers will make.
There are so many options: whether you want to go electric, petrol or diesel, personal lease or buy, and which make and model to go with, there’s a lot to weigh up.
That’s why a salary sacrifice benefit can seem like it’s too good to be true. At loveelectric, we save our drivers up to 60% on their new electric car lease – incomparable savings that make joining the electric revolution feasible for many for the first time.
We can keep our prices so low due, in part, to a favourable Benefit in Kind (BiK) rate. This rate, a type of tax, is the contribution made to HMRC when an employee receives a work benefit. BiK is calculated from the emissions produced by the car – so a battery electric vehicle (EV), with zero tailpipe emissions, creates a much smaller BiK contribution than a car powered by fossil fuels. This ultra-low BiK rate for EVs is part of the UK government’s key commitments to encourage the adoption of EVs to meet the nation’s target of decarbonising road transport.
However, like all taxes, BiK rates are subject to change – but, today, the UK Government announced that EV BiK rate will remain incredibly low, only increasing by 1% each year from 2025 to 2028, and then 2% each year until 2030.
How does salary sacrifice work?
Salary sacrifice is a fantastic way to make the most of your salary. Put simply: you receive a benefit in return for a small part of your gross salary.
You may have heard of the cycle-to-work scheme, where you give up a small portion of your salary and receive a bike in return. At loveelectric, our scheme is just like cycle-to-work – but for EVs. Employers lease a car on behalf of an employee and, each month, the employee pays for the lease using part of their gross salary. In return, employees drive away with a fully insured, wholly maintained, new electric car.
Learn how we stack up to our competitors
While ‘salary sacrifice’ may not be the most appealing phrase – who wants to sacrifice their salary? – the benefits gained from the small ‘sacrifice’ vastly outweigh the salary reduction. You get to drive away in a new car and save on income tax. That’s what we call a win-win situation.
Most importantly, salary sacrifice makes leasing and operating a new electric car affordable and accessible for more people than ever before. We’ve spoken at length about how passionate we are about democratising access to electric cars – but how can drivers actually save up to 60% on a new electric car lease?
Benefit in Kind: the winning formula
The magic lies in the low Benefit in Kind (BiK) rate. BiK rates are a form of tax an employee has to pay for receiving a perk or benefit related to their employment. HMRC requires all cars on lease as an employee benefit, such as salary sacrifice, to pay a certain level of BiK tax. The vehicle’s CO2 emissions determine this rate: the higher the CO2 emissions, the higher the tax. With zero tailpipe emissions, electric cars have a substantially lower BiK rate than their petrol or diesel counterparts.
On November 17th, the UK Government confirmed that the BiK rate for EVs will increase by just 1% each year from April 2025 until March 2028. Then, on October 30th 2024, they confirmed that the rate will increase by 2% from April 2028 until March 2030. This incredibly low rate has had a huge real-world impact: the monthly rate drivers pay for an EV through salary sacrifice is much lower than what they’d pay through a personal lease or an Internal Combustion Engine (ICE) car on salary sacrifice.
Read more about how EV and ICE salary sacrifice leases compare
And perhaps most importantly, this favourable policy has had a massive impact on EV uptake across the UK as more people than ever before can access affordable electric cars, helping the country take a step towards meeting its net-zero goals.
Keeping the BiK rate as low as possible for as long as possible is an essential step to ensure the UK meets our zero-emission targets.
In their Autumn Statement on November 17th, the UK Government confirmed that they will retain their world-leading, ultra-low BiK with the rate rising by just 1% each year between 2025 and 2028. To ensure that drivers know how this change might impact their paycheck - and how much you’ll save on a new electric car - we’ve crunched the numbers to help you make an informed decision.
The new BiK rates, illustrated
With an incredibly low BiK rate locked in until 2028, the UK government has secured a world-leading policy that will democratise access to electric cars. Drivers across the country will be delighted to hear that EV BiK tax rates will remain substantially lower than fossil-fuelled cars for the foreseeable future.
To illustrate how the small increases from 2025 will impact drivers, we have created a series of examples for various electric car choices and tax bands (marginal tax rate). The examples shown assume a 36-month contract, with an annual mileage allowance of 5,000 miles through loveelectric's salary sacrifice scheme.
** Note – BiK tax is calculated by multiplying the P11D (or payroll) value of car by BiK % and your marginal tax rate over the next 12 months:
BiK tax = (P11D x BiK %) x Marginal Tax Rate
As you can see, the new, higher BiK rate does impact the overall lease price of each vehicle. However, the savings are still incredibly high compared to the gross monthly lease cost for every vehicle at each tax band. Salary sacrifice, even with this BiK tax increase, will still be the cheapest way to access electric cars - especially when compared to a personal lease or leasing a fossil-fuelled car.
Please note: We will update these calculations for the 2028-2030 rate increase in 2025.
Vehicle Excise Duty
A low Benefit in Kind rate is not the only favourable tax position that EV drivers benefit from. Another substantial tax saving is on Vehicle Excise Duty (VED). Commonly referred to as ‘car tax’ or ‘road tax’, VED is split into two different parts: the First Year Rate (FYR) and the Standard Rate (SR).
Electric car drivers have historically enjoyed numerous VED tax breaks.
VED varies for cars registered after 2017 according to the carbon dioxide (CO2) emissions of the vehicle. Thanks to their zero tailpipe emissions, they were exempt from paying both the FYR (which could be up to £2000 for petrol/diesel vehicles) as well as the £140 flat-fee for the standard rate.
Additionally, a one-off tax surcharge is typically applied to any car that costs over £40,000 new, but electric cars were able to swerve that cost too.
However, like BiK rates, the VED system is subject to change. While these rates have increased most years depending on inflation, zero-emissions cars have been exempt - but today’s Statement informed us that electric cars will now generate VED.
We were delighted to hear in the 2024 Autumn budget that the Government will put a freeze on the lowest First Year Rate paid by electric cars until 2029/30, whil simultaneously doubling the rate for all other emission cars from 2025 onwards.
In short? Electric cars are going to become a far more affordable option and gain even more cost-parity with their petrol and diesel counterparts.
The future of EV salary sacrifice
The UK currently boasts a world-leading policy that democratises access to electric cars. Through an unbeatable Benefit in Kind tax rate, drivers across the country can access new, zero-emissions electric cars for the first time at fantastic prices.
The 2024 Autumn Budget has helped clarify EV BiK rates, ensuring certainty for the future electric car salary sacrifice market.
While we will see the end of the ultra-low 2% EV BiK rate after 2025, the new rate/increasing rates are still incredibly beneficial and will see drivers making huge savings through salary sacrifice compared to a personal lease or leasing an ICE car.
The electric transition is underway – and maintaining a low BiK rate is a critical piece of the UK’s net-zero future.
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