As the new financial year begins and latest tax changes take effect, many businesses may be questioning whether EV salary sacrifice schemes are still a cost-effective tool. 

Matt Walters, head of consultancy services and customer value at Ayvens

Matt Walters, head of consultancy services and customer value at Ayvens, emphasises that these schemes not only deliver significant savings but also contribute meaningfully to ESG goals and carbon reduction commitments.

Understanding the upcoming changes  

From April 2025, several changes will affect EV salary sacrifice schemes which could lead to higher costs for both employers and employees.

Company car tax is rising: After a three-year freeze, company car tax for EVs increased from 2% of the list price to 3% from 6 April 2025 and will rise by 1% point for the following two financial years, before rising to 7% in 2028/29, and 9% in 2029/30. This pushes up the cost of Benefit-in-Kind for drivers and Class 1A NICs for employers.

VED exemptions are ending: From 1 April, annual VED rates were equalised across all cars registered since 2017/18, which will add roughly £600 to the cost of a four-year EV lease. New registrations priced at £40,000 or more will also attract the Expensive Car Supplement, which adds a further £1,300 to the whole-life cost. Some examples are shown below – both vehicles would previously have been VED-exempt. As almost 80% of EVs are over £40,000, most monthly rentals will increase by £40 from April.

Weaker PHEV incentives: The tax gap between EVs and plug-in hybrids will grow. Cars emitting between 1-50g/km CO2 will move into a single 18% company car tax band in 2028/29, regardless of their electric range. That’s within the scope of a four-year contract.

Why fleets should still consider an EV salary sacrifice scheme 

Despite these changes, EV salary sacrifice schemes remain one of the most cost-effective solutions for fleets and businesses looking to manage their costs while supporting their wider ESG goals.

Changes to employer NICs from 6 April 2025 were announced as part of the Autumn Budget 2024. The income threshold was reduced from £9,100 to £5,000, while the rate will increase from 13.8% to 15%. Salary sacrifice schemes can help mitigate some of the additional tax burden,” Walters says.

For an employee on an average UK income (£36,000), their employers’ NICs will increase from £3,700 per annum to £4,650 – amounting to a £1.9m tax bill for businesses with 2,000 employees. With a typical employee take-up rate of 7.5%, a salary sacrifice scheme could offset 12% of that increase – or 1.6% per 1% of the employee population that opts in.

Employers who provide cash allowances can also benefit from implementing EV salary sacrifice – especially if drivers trade up beyond the value of the allowance.

The savings can be significant. For example, one our own customers are projected to reduce their NICs by an average of £6,000 per employee over a four-year contract by replacing cash allowances with an EV salary sacrifice scheme.”

Navigating a changing landscape 

As tax regulations evolve, businesses must adapt to maintain cost efficiencies while staying committed to their long-term sustainability goals. Despite upcoming changes, EV salary sacrifice schemes remain a powerful tool for managing costs, reducing emissions, and supporting ESG initiatives.

Navigating these shifting policies can be complex, but Ayvens is here to help. With expert guidance, we empower businesses to make informed decisions, ensuring they maximise savings and continue progressing toward a greener future. By staying ahead of tax changes, Ayvens helps customers remain on track, optimising their fleet strategies for both financial and environmental benefits.