Salary Sacrifice - how to pay less for your electric car

BMW - Advertisement Feature

10.12.2020

There’s no getting away from the fact that electric cars are currently more expensive to buy than their petrol or diesel counterparts. It’s not something even the most ardent fan could argue against.

But simply looking at the list price isn’t focusing on the bigger picture. Because over the course of your ownership it’s highly likely that an electric car, like the BMW iX3, will end up costing you less than the equivalent petrol or diesel.  If you’re using it as a company car or are able to lease it through a salary sacrifice scheme run by your employer, the savings will be even greater. 

Here at Electrifying, Ginny, Nicki and Tom also love the fact that you’re likely to enjoy driving an electric car more too. In fact research shows electric car owners love never having to visit a petrol station and waking up to a full ‘tank’ every morning always brings a smile to our face. Then, of course, there are the environmental benefits.

BMW have created a handy tool which allows you to see how much you could save by going electric with its plug-in hybrid and all electric i range. We’ve also created this Electrifying guide to help you figure out if switching is a wise investment. 

Never have to visit a petrol station again

Grant yourself savings

First, let’s look at the best way to buy an electric car. Very few people buy a car outright with cash these days, but even if you do buy a model like the i3 you’ll be entitled to £3,000 from the government in the form of a Plug-in Car Grant (PiCG) which will be claimed by the dealer and taken off the final bill – as long as the car has a price of less than £50,000 before options.

Most buyers will use some sort of finance or run a car through the company however, and this is where there are even more savings.

Firstly, let’s assume you are a ‘normal’ private buyer, looking to get a car on a lease or contract purchase scheme. Because these types of finance take into account the predicted resale value of the car when you hand it back in a few years, the stronger prices electric cars fetch when they are eventually sold makes your monthly payments cheaper. 

If you are an employee there’s an even cheaper way of going electric though, by getting the Inland Revenue to let you off the tax you’d be paying on the lease through Salary Sacrifice.

Sacrifice that salary

Remember how your parents used to encourage you to tidy your bedroom or study well for exams with a little bit of pocket money? Well the government does the same to help encourage us to do things which are good for us, like join a gym or buy a bike. And now they’ll give you help to lease an electric car.

Salary sacrifice means the cost is taken out of your wages before they are taxed. As a top rate tax payer will have 40% shaved off any income over a certain amount by the Inland Revenue (plus more for National Insurance), this clearly offers decent savings on ‘big-ticket’ items like a car lease.

Firstly, you need to make sure your employer is on board. If they’re already involved in a Cycle To Work or child care program, then this won’t be too much more work for them and it’s already offered by big organisations such as the NHS. 

The hard work is done by a leasing company which makes it as simple as possible for everyone. Unlike private lease or Personal Contract Hire, there’s no upfront cost and you’re not expected to pay a ‘balloon’ cost at the end of the lease. You just sign up for the monthly payments and that’s it – they are taken straight out of your wages every month before they are taxed. The lease company will usually take care of the servicing, maintenance and insurance too.

The actual monthly price will vary according to a number of factors, but expect it to knock more than £150 off the amount you’ll notice going from your pay packet if you are a 40% taxpayer. That will make it cheaper than going into a dealership with your disposable income and leasing petrol or diesel.

Cars like the BMW iX3 can be made more affordable to employees of companies

Make the perk work

If you are fortunate enough to be offered a vehicle by your company, you’ll be keen to get into an electric car as the potential savings can run into thousands of pounds a year. All you need to do is get your head around the maths and a few rules! So here goes, new guidance around benefit in kind taxation mean pure electric drivers will pay no money to the Inland Revenue for the 2020/21 tax year and just 1% in 2021/22. Compare that to the emission-based taxes on petrol and diesel cars which can run into thousands. 

For example, if you are running a mid-size diesel SUV, have your fuel paid and are a high-rate tax payer you’d lose around £9,500 in extra income tax every year. The cost for a BMW iX3 in the 2021/22 period will be £247. That sort of saving could pay for a rather nice holiday every year.

The Inland Revenue will let you charge for free at work too, without incurring any tax liability. But do check with your employer though to make sure they’re happy to let you plug in! 

Don’t be fuelish

The most noticeable saving is of course going to be down to fuel bills. If you charge at home on the average domestic electricity rate of 16p/kWh then you’ll be able to travel for about 100 miles for about £4.50 in a family-sized electric SUV such as the BMW iX3. If we assume that a petrol or diesel car of the same size can manage 40mpg and a gallon of fuel is £1.28/litre, then the same journey will cost around £14.50. Multiply that by 10,000 miles for a year’s motoring and you’ll see that the electric car will be about £1,000 less to fuel per year.

It’s worth bearing in mind that the savings will be eroded if you need to regularly need to charge in public though. There are still some charging points which offer electricity for free, but most need payment of some description.

If you are rapid charging, then like most things you’ll get it cheaper at a supermarket than a service station! Rapid charging at a Tesco or Aldi is about 24p/kW, which is low enough to mean you could get a reasonably-priced 80% charge for an iX3 in an hour or less. If you plug in while you do a once-a-week shop it could make electric car ownership realistic, even if you don’t have off-street parking.

Electric company cars could save you thousands every year

Don’t be pointless

If you’re thinking you can get by with just the three-pin plug socket which you usually use for the lawnmower or Christmas lights, forget it. You’re going to need to get a dedicated charge point installed at your house. Besides being safer and faster, most of the points have tethered cables, which means they’re permanently attached to the charger, so you don’t need to fish them out of your boot every time you want to plug in.

Getting a point installed should be fairly painless, depending on where you want it screwed to your house. If you are buying a car like the BMW iX3, the dealer will be able to help guide you through the process, which will usually be handled by a company such as bp pulse. The government will even contribute £350 to the cost of the installation. In Scotland there’s even more cash available, with an additional £300 up for grabs from the Energy Savings Trust Scotland.

Bear in mind though that the installer won’t be happy if you have old wiring, an antique fuse board or want to install the point somewhere unusual. They will happily spend a few hours at it but are not going to tunnel under your ornamental pond and block-paved driveway to run a cable. If you think you might need a bit more work, it might be best to get your own electrician to do the basic preparation and upgrades and call the installer in last.

If you’re in rented accommodation or a communal car park, you’re going to have to make some calls to ask permission for the work too. Most landlords and management companies will have had some experience of this by now, but don’t expect your neighbours to pay for your car charging from a communal electricity bill. 

It sounds like hassle, but you’ll only need to do it once and then you have your very own filling station on your driveway.

Order of service

The reliability of electric cars was one of the biggest question marks when they started to become more popular at the beginning of the last decade. It was new technology, and no-one knew if it was going to stand up to regular use. 

But now we have a few years’ experience, and it all seems good. Pure electric cars have far less to go wrong than the equivalent petrol or diesel and this shows when you get your servicing bill. There’s no oil to change, emissions to check, fuel to filter or clutch to fix. As the brakes are used less thanks to regenerative braking (where the energy used to slow down is sent back to the battery) those parts last longer too. 

Many electric cars have long warranties too – BMW covers its batteries for eight years or 100,000 miles.

Dedicated home chargers are safe and convenient

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