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Salary Sacrifice: The Importance of Benefit-in-Kind (BiK)

The History of Salary Sacrifice Car Schemes

Salary sacrifice car schemes were introduced over 10 years ago which proved to be a very popular mechanism for companies, especially those in the motor trade to offer their staff a significant incentive not only for themselves but all their family members. Over the years, companies in all industries have recognised the benefits which has resulted in a large uptake.

Benefit In Kind Salary Sacrifice Lease Car

Benefit-in-Kind and Electric Lease Vehicles

As the scheme was introduced before the EV market existed, employees were able to choose any petrol or diesel models which, although attracted a significant BiK, still was very cost effective once income tax and national insurance savings were deducted. Coupled with the fact that the scheme is based on no initial deposit and no credit check, employees were put in the best financial position to lease the car of their choice. Some employers even allowed their staff to lease more than one vehicle in order for their families to also directly benefit from the scheme, further strengthening their commitment and loyalty to the company. This is one of the main benefits that companies have enjoyed over the years, something that has become very important in the world we live in today.


With the electric vehicle market now growing at a steady pace coupled with the UK government's commitment to holding the BiK for EVs at 2% until March 2025, never has there been a better time for companies to implement a salary sacrifice car scheme. This means that the BiK payable for an EV will range between £15-£70 per month which is significantly less than their petrol/diesel equivalents (£200-£500 per month), which maximises the savings provided by the reduction in income tax and NI payable. By maintaining the 2% BiK until 2025, this gives employees the confidence to utilise the scheme in the knowledge that there will be no drastic changes to the amount they will be paying for their salary sacrifice vehicle. In most cases, this should result in a reduction in staff turnover with employees recognising the level of benefit provided by their company.


With the current drive to ‘Net-Zero’, companies are also positioning themselves as socially and environmentally aware, not just providing a great benefit for their employees. Considering all these factors never has there been a better case for companies to implement a salary sacrifice scheme. With the increase in vehicle prices and interest rates, the BiK becomes the most important factor in salary sacrifice as the savings available make it the cheapest lease option currently available in the marketplace.


This is only made possible by the 2% BiK and once you consider that maintenance and vehicle insurance can also be incorporated, the employee now has enhanced savings which, had it not been for their employer, would have not been something they would have access to.


Carbon Footprint & Electric Car Leasing

As a society, we have all been encouraged to consider our own carbon footprint in all aspects of our lives and the way we transport ourselves and our families has become an important decision going forward. The cost of fuel has risen at a rapid rate resulting in people re-evaluating which solution is best for them going forward, and in most cases, the answer is an electric vehicle.

Those fortunate to be in the position to purchase an EV outright, will benefit directly from the savings available through a reduction in running costs however this amounts to only a minority of people. The majority of people who are entering into the EV market for the first time will likely need to look at funding options which is where salary sacrifice wins when compared to any other solution currently available in the marketplace. This is also further strengthened by the fact that there is no initial deposit required, potentially saving the employee thousands of pounds from the outset.


The success of the salary sacrifice EV car scheme is a direct result of the UK government's action to maintain a very low BiK so going forward, the most important question which will need to be addressed is what the plan will be regarding the rate. The most positive outcome will be for the UK government to keep the BiK at 2% however you only need to look historically at the small incremental increases that have taken place in the recent past as a clue.


Companies have requested clarification regarding the UK government's plan beyond March 2025 which still remains an unanswered question. Unfortunately for companies, this remains the most important question in relation to Salary Sacrifice.


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