Got net-zero news, project updates, or product launches to share? Fleet leasing industry urges UK govt to think twice on salary sacrifice changes
Alphabet GB has made a compelling plea to the Government to carefully consider any potential changes to salary sacrifice for cars in order to prevent the industry from sliding into an ‘EV recession’.
The electric share of salary sacrifice schemes is currently hovering around 100%, signifying the critical role these schemes play in facilitating the transition to electric vehicles.
This issue has gained significant attention following a report by the Resolution Foundation think-tank, which suggested that salary sacrifice schemes primarily benefit higher- and additional-rate taxpayers.
Speculation is rife that the Chancellor might contemplate altering or even scrapping sal-sac for cars in the Autumn Budget, citing the need to make tough decisions.
Salary sacrifice, also known as salary exchange, is a well-established tax-efficient benefit that enables employees to lease an electric vehicle by agreeing to forgo a portion of their salary. This arrangement leads to tax and NICs savings for employees, as well as employer NICs savings.
This mechanism has played a pivotal role in driving the adoption of electric cars, with a significant share of new EV registrations attributed to salary sacrifice schemes.
The latest BVRLA Leasing Outlook report for Q2 2024 showcases that the electric share of salary sacrifice schemes sits at close to 100%, whereas the EV share of new business contract hire agreements hovers around 70%. In the broader new car market, fully electric cars accounted for 16.6% of purchases in the first half of 2024, according to SMMT data.
Alphabet GB has cautioned that any changes initiated by the Government could potentially undermine the perceived or actual benefits of salary sacrifice schemes.
Caroline Sandall-Mansergh, consultant and channel development manager at Alphabet GB, emphasised the critical role of salary sacrifice schemes in enabling individuals to lease zero- or lower-emission vehicles.
The BVRLA has challenged the notion that the advantages of salary sacrifice schemes are restricted to high earners, highlighting that these schemes are helping to democratise access to zero-emission motoring.
Toby Poston, director of corporate affairs at the BVRLA, pointed out that the average EV provided through salary sacrifice schemes is cheaper than the overall average EV. Moreover, a significant proportion of salary sacrifice drivers fall within the basic-rate tax bracket, with over half being female. These drivers are dispersed across various sectors, notably health and social work.
Poston further underscored that salary sacrifice delivers a straightforward, risk-free comprehensive benefit for both employees and employers. The vehicle is owned by the leasing company and leased to the employer, who, in turn, offers it to the employee in exchange for a reduced salary.
This setup ensures that the leasing firm bears the risk of vehicle depreciation, a critical advantage amidst a backdrop where used EV values have plummeted by 50% over the previous two years.
Changes to salary sacrifice could potentially impact the government’s net zero targets, especially as Chancellor Rachel Reeves grapples with a reported £40bn funding gap. The concern over potential modifications to salary sacrifice schemes remains unresolved, with discussions between Treasury officials and representatives of the British car industry shedding little light on the forthcoming Autumn 2024 Budget.
There are apprehensions surrounding a potential increase in employer National Insurance, potentially applied to the salary sacrificed amount, which could pose challenges for employers.
Despite the uncertainties, members of the industry have not received any concrete indications regarding the imminent Budget.
Alphabet has reiterated the potential ramifications of any adjustments to salary sacrifice on corporate emissions and the Government’s net zero aspirations.
Sandall-Mansergh emphasised that promoting employee adoption of zero or low carbon-emitting vehicles through salary sacrifice can significantly benefit a company’s carbon emissions reporting obligations. This becomes particularly pertinent given the impending disclosure requirements slated for next year.
Salary sacrifice serves as a crucial enabler in realising companies’ net zero targets. Any alterations that undermine the attractiveness of these schemes could run counter to the Government’s sustainability goals.
Lastly, Alphabet has cautioned the Government about the repercussions of modifying salary sacrifice on automakers, who are already grappling with stringent zero-emission vehicle sales targets under the ZEV mandate.
Sandall-Mansergh stressed the importance of supporting the automotive industry to help manufacturers meet their emissions targets and achieve carbon reduction objectives for the UK. Maintaining current benefit levels through salary sacrifice or revising the threshold for the expensive car supplement could play a pivotal role in aiding the industry and the nation in attaining sustainable outcomes.
For companies concerned about managing a salary sacrifice scheme, support is readily available through leasing companies, which can offer guidance and assistance in administering the programme.
