According to recently published statistics, the company car is experiencing a revival. In 2023–2024, the number of people receiving company cars increased by 80,000 from the previous year.
After the number of company car recipients dropped from a high of 960,000 in 2015–2016 to 720,000 in 2020–2021, the latest figures show that company cars are making a comeback.
An increase to 840,000 company cars in 2023–2024 is likely due to HMRC’s beneficial tax treatment of cars with low CO2 emissions, particularly fully electric vehicles.
The rise of fully electric company cars
Thanks to long-term tax threshold freezes, sacrificing some of your salary in return for a low-emission company car could actually result in significant tax savings.
For example, if an employee earns £120,000 a year and sacrifices £6,000 to cover the cost of the employer leasing a mid-priced electric company car, this can reduce the employee’s annual tax and National Insurance contributions by around £2,800.
This is much cheaper than leasing an electric car personally. There will also be no fuel benefit for a fully electric company car, even if the employer provides a charging point on their premises.
It’s not surprising, then, that the number of recipients of zero-emission company cars increased six-fold from 2020 to 2024, representing 41% of all company cars. Or that the average CO2 emission of a company car in 2023 was 56 g/km, down from 71 g/km the previous year.
As a result of the rise in fully electric company car drivers, the number of employees driving diesel company cars dropped from nearly 50% in 2020–2021 to just 13% in 2023–2024.
The future of electric car salary sacrifice schemes
It currently seems as though salary sacrifice for electric cars is worth it for employees, as fully electric company cars have a benefit percentage of 3%.
That said, this percentage will increase to 9% by 2029–2030, for much less beneficial savings. For example, the taxpayer mentioned above will only save around £1,000.
Does this mean the comeback of company cars is short-lived or not? We’ll have to wait and see.
In the meantime, if you want to see how much you might save, you can calculate the tax cost of a company car online using HMRC’s company car and fuel benefit calculator.
Employers and employees who are interested in electric car salary sacrifice schemes can also seek professional advice on tax management for this type of arrangement.
At gbac, we have a strong team of accountants in Barnsley who can help with payroll and benefit in kind concerns. Simply call 01226 298 298 or email info@gbac.co.uk for assistance!