Employer Tax & NIC Impact vs Salary Sacrifice for a Company Electric Car
If you wanted to lease an electric car for use by one of your employees, you might be wondering what the tax and National Insurance Contribution impacts would be, against a salary sacrifice arrangement.
As electric car and vehicle technology improves, they are becoming more affordable and thus accessible, so their use is becoming more popular for both business and personal purposes. Reduced carbon footprint and fuel costs are just two reasons businesses have started to introduce them to their company car fleet.
One way of doing so is by leasing the car, with an agreed salary sacrifice arrangement between the employee who will be using the vehicle and the employee. The cost of leasing the car is offset against the savings you would make by reducing your employee’s pay.
This type of arrangement would usually oblige the employer to consider the salary lost versus the cash equivalent being provided when calculating the benefit to be reported on for P11(d). For a company car this would be calculated under section 121A ITEPA 2003.
However, in the case of leasing an electric car, the usual rules of OPRA don’t apply, due to section 120A ITEPA 200, which was brought into legislation through Schedule 2 of the Finance Act 2017. The legislation disapplies the OPRA rules for low emission cars, defined by CO2 emissions of 75g/km or less.
The employer is only required to calculate the cash equivalent of the electric company car benefit by using the standard rule, or method statement, under section 121 ITEPA 2003. This is the list price multiplied by the appropriate percentage for the cars CO2 emissions, which is currently 2% for the tax year 2022/23.
Due to this, the employer benefits by a reduction in employer class 1 National Insurance Contributions through payroll on the salary sacrifice, compared to the amount of Class 1A the employer would have to pay for the provision of a company car.
Your employee would also save on employee class 1 National Insurance Contributions, as well as tax via their salary sacrifice. They would only pay tax on the reportable cash equivalent of the vehicle, per section 121 ITEPA 2003. The employer class 1A would also be assessed against the same cash equivalent.
There are additional tax advantages to leasing an electric car through your business, including:
– 100% deduction of the leasing costs incurred each year against profits
– If you install electric car charging points at your business up to the 31st March 2023, you can benefit from the ‘super-deduction’, offering 130% first-year allowance on qualifying charging points.
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