Businesses across the UK have been turning to electric vehicle salary sacrifice schemes to offset Rachel Reeves's upcoming tax increases in April.
Companies have been seeking ways to minimise the impact of the Chancellor's controversial National Insurance hike, which will rise from 13.8 per cent to 15 per cent from April 1.
The change, branded a "jobs tax" by business groups, has prompted firms to explore alternative benefits that can reduce their tax liability.
As a result of the switch in tactics, car providers have reported a surge in interest from companies looking to establish EV schemes following the Budget announcement.
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Businesses can receive tax relief for offering electric cars to employees
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These arrangements allow businesses to reduce their National Insurance contributions, as the tax is only charged after salary sacrifice deductions.
Thom Groot, chief executive of The Electric Car Scheme, reported that inquiries jumped by 20 per cent after the Budget announcement. Car orders also rose by 22 per cent in the same period.
He told The Telegraph: "Pretty much overnight after the Budget, we saw a big uptick in interest. Previously there were a lot of businesses who were looking at it and telling us, 'This is interesting, but I'm really busy'.
"But now the increase in employee National Insurance contributions has sparked a lot of those businesses into action, because they're being challenged on costs and asking, 'How can we drive savings?'"
The salary sacrifice schemes work by having businesses lease electric vehicles on behalf of their employees. Workers then receive the cars as a benefit and pay for them from their pre-tax salaries.
According to accountancy firm BDO, companies can make "considerable" National Insurance savings through these schemes. However, some benefits will be reduced by changes to benefit-in-kind tax rules also coming into force.
From April, companies must pay a tax on cars equivalent to three per cent of the list price, up from two per cent previously. This will increase by one percentage point annually until April 2028.
Groot said a typical monthly salary contribution is around £600, meaning employers could reduce their NICs by approximately £90 per employee each month.For a company with 100 employees participating in the scheme, this would translate to annual tax bill savings of £108,000.
BDO noted that despite the upcoming changes to benefit-in-kind tax rules, "the overall financial impact achievable from implementation is still positive." Salary sacrifice schemes have been credited with boosting EV uptake in recent years.
Many electric vehicle models remain too expensive for drivers to purchase outright, making these schemes an attractive alternative, Groot explained.
He added: "People were looking at it as a way to offer a nice benefit for their employees, because it was a very, very competitive recruitment market," he said. "Now the emphasis is much more on cost savings."
Across companies using The Electric Car Scheme, around 52 per cent of staff who lease vehicles are basic rate taxpayers, with 48 per cent on higher rates. This compares to just 13 per cent of the national workforce being higher-rate taxpayers.
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Companies can save money off national insurance bills by offering salary sacrifice schemes
PAThe second-hand EV market has become more active over the past year, making the benefit more accessible. A typical second-hand EV costs £400 per month through salary sacrifice schemes.
