National Insurance increase strengthens EV standing

The increase in National Insurance (NI) contributions recently confirmed by government has further strengthened the financial standing of electric vehicles (EVs) as company cars, and made them even more attractive within salary sacrifice schemes, says Arval UK.

FOR COMPANY CARS:  EVs become stronger, financially

Richard Cox, Arval UK Consultant, said: “The change in NI improves the position of low carbon vehicles relative to others, so while there is an increase for EVs, it is much lower than for PHEV and much, much lower than for ICE.”

Typical figures were produced by the sustainable fleet and mobility company showing that for a £40,000 internal combustion engined (ICE) car, the monthly increase in employers’ NI paid on benefit in kind (BIK) taxation will be £11.67, whereas for a £45,000 petrol hybrid electric vehicle (PHEV), it will be £5.62, and for a £50,000 electric vehicle (EV), just £1.04.

Richard explained that, as a general principle, the biggest impact of the NI increase for employers and employees is on salaries, where there is a combined 2.5% increased tax charge. In contrast, for company cars the rate is half of that at 1.25%, because employees do not pay NI on benefits. 

“This is good news for company cars in the sense that the increase in NI is smaller than for cash options, although again it is important to underline that the amounts involved are quite small when measured on an individual basis.

“The amounts involved for employers are not enormous – an additional 1.25% on NI is barely more than the increases we see in BIK rates each April, but will certainly add up over a large fleet.”

He added that the increase would have the least effect on companies who use a whole life cost (WLC) model for constructing their choice lists.

“A WLC based approach means that the NI increase will be automatically absorbed because it is part of the defined company car budget, although it does marginally reduce the buying power of employees unless the employer decides to make a compensatory increase.”

FOR SALARY SACRIFICE: EVs are more attractive, especially for employers

Richard said: “The NI increase does also make salary sacrifice schemes based around EVs even more attractive for both employers and employees. Employers will save on NI payments on salaries alongside a much lower charge on the BIK element, while employees will save more NI although there is no corresponding NI charge on the BIK.

“We are currently seeing a considerable increase in EV salary sacrifice schemes and this new development only adds to their attractiveness.”

Arval sample employer calculations

Note: The different prices of EVs in this example are intended to represent typical list prices for three comparable fleet vehicles using different forms of power.