Octopus EV Company Car Scheme - BIK - Pension Contribution

Pointers

Hi All,

I've been doing some research on this but can't find an answer about how this would be calculated. 

As I can't be sure what my salary will be in the next 2-3 years (an element of my pay is fixed and then there is a variable bonus) I have been trying to work out what the benefit to me in tax and national insurance savings would be if I joined the scheme. Looking at the calculations for the EV company car scheme the higher the salary the greater the benefit which seems logical. 

However, I try to pay as much into my pension each year from my salary (using the company salary sacrifice scheme on a monthly basis) and from additional voluntary contributions so that my actual salary is lower and so the tax benefit of the low BIK on the EV scheme is reduced i.e. if I pay in the maximum £40k this would reduce my taxable salary by £40k and so my the tax saving with the EV would be lowered. 

The reduced tax benefit wouldn't cause me to lower my pension contributions but it may dissuade me from joining the car scheme. I only plan on going for one of the more basic EVS as I don't need anything special (there are Teslas and other luxury cars available on the list) and so if the tax benefit isn't significant then I may just stick with the petrol car that I have, as its fine for a few more years, and then buy a second hand EV in 2-3 years time as more come onto the market. 

I personally think EVs are the future and I have off street parking to charge one but I'm put off from buying a new one as I can't justify the high cost of a new car (not very interested in cars and don't drive much) and so lease deal sounded interesting as money would come out of my salary each month and servicing, insurance etc is included. 

I think my understanding of the tax is correct but please can someone correct me if I'm wrong.

Also, the BIK (2%) has only been published out to 2024/25 and so another concern is that if I take a long lease it could increase signifcantly after this and I would be tied into the deal.


If anyone has any feedback on the EV company car scheme in general I would be interested to hear your thoughts.     

Thanks in advance

  

Grumpy_chap

Pointers said:

Hi All,

I've been doing some research on this but can't find an answer about how this would be calculated. 

As I can't be sure what my salary will be in the next 2-3 years (an element of my pay is fixed and then there is a variable bonus) I have been trying to work out what the benefit to me in tax and national insurance savings would be if I joined the scheme. Looking at the calculations for the EV company car scheme the higher the salary the greater the benefit which seems logical. 

However, I try to pay as much into my pension each year from my salary (using the company salary sacrifice scheme on a monthly basis) and from additional voluntary contributions so that my actual salary is lower and so the tax benefit of the low BIK on the EV scheme is reduced i.e. if I pay in the maximum £40k this would reduce my taxable salary by £40k and so my the tax saving with the EV would be lowered. 

The reduced tax benefit wouldn't cause me to lower my pension contributions but it may dissuade me from joining the car scheme. I only plan on going for one of the more basic EVS as I don't need anything special (there are Teslas and other luxury cars available on the list) and so if the tax benefit isn't significant then I may just stick with the petrol car that I have, as its fine for a few more years, and then buy a second hand EV in 2-3 years time as more come onto the market. 

I personally think EVs are the future and I have off street parking to charge one but I'm put off from buying a new one as I can't justify the high cost of a new car (not very interested in cars and don't drive much) and so lease deal sounded interesting as money would come out of my salary each month and servicing, insurance etc is included. 

I think my understanding of the tax is correct but please can someone correct me if I'm wrong.

Also, the BIK (2%) has only been published out to 2024/25 and so another concern is that if I take a long lease it could increase signifcantly after this and I would be tied into the deal.


If anyone has any feedback on the EV company car scheme in general I would be interested to hear your thoughts.     

Thanks in advance

  

That is quite a long post with several intertwined questions, so it is not entirely clear what the question is that you would like the forum to try to answer.

If you are earning enough to make £40k annual pension contributions (through salary sacrifice) and also consider further salary sacrifice for an EV, you might well benefit from the professional (paid) advice of an Accountant who can consider your circumstances in full and set out options against each other in a viable manner.

The only question that can be answered is:

"the BIK (2%) has only been published out to 2024/25 and so another concern is that if I take a long lease it could increase signifcantly after this and I would be tied into the deal."

Yes - that seems correct and no-one can second-guess what the Chancellor will do with regard to future tax rates.  There may be further intention set out in the Spring Statement.  The current bands set out until 2024/25 (assuming they are not changed) would cover the duration of a typical three-year company car lease duration starting now.

Pointers

Yes, not entirely clear. That is true.

A worked example would be:
If I get paid £100k salary
I then put £40k into my pension via SS this leaves my salary at £60k
I certainly plan to do the above
Does this then mean that the income tax and national insurance savings are based on a salary of £60k?
I think this is the case and so the benefits of the scheme are reduced. 

If anyone out there has done this do this calculation sound correct? 

 

Grumpy_chap

Pointers said:

Yes, not entirely clear. That is true.

A worked example would be:
If I get paid £100k salary
I then put £40k into my pension via SS this leaves my salary at £60k
I certainly plan to do the above
Does this then mean that the income tax and national insurance savings are based on a salary of £60k?
I think this is the case and so the benefits of the scheme are reduced. 

If anyone out there has done this do this calculation sound correct? 

Yes, that seems correct.
What do you mean by "benefits of the scheme are reduced"?

You start with £100k subject to NI and tax
SS £40k to pension, reduces that to £60k subject to NI and tax

If you SS more for the EV car, then that is the same reduction in tax whether it is the last part of your higher rate band or the first part of your higher rate band.  Assuming the car is <£800 per month, so <£10k per year you are still in the same tax band from £50,270 right through to £100k.

AIUI, the EV is then subject to 1% / 2% BIK until the end of tax year 2024/25 and anything could happen after that.  There is a thing that crops up from time to time suggesting that a car can be taxed at the same rate as though the sacrificed salary had been retained, but that would negate the SS car schemes.  It is worth double checking - there may be someone else who can confirm.

Another factor to consider with SS is if it reduces your pensionable pay for the amount of employer contributions and / or impacts your salary used for calculation in the unfortunate event of a redundancy situation arising.

Pointers

Thanks very much for the helpful explanation.

What I meant by the benefits of scheme being reduced is that the tax and national insurance benefits are reduced if they are applied to my lower salary (post pension salary sacrifice) but as I think you are pointing out it doesn't really matter either way as it is still being applied to the element of my salary that falls into that tax band. 

Yes, that's my understanding too regarding the BIK. If I do a 3 year lease then that risk is reduced (though as far as I'm aware the government could elect to retrospectively change the BIK if they wished) but if I do a 4 year lease then for the last year I don't know what the BIK could be. Its seems logical that it would go up but it would still be fine at 5% or 10% but in theory it could be much more than this. 

I hadn't heard that before about SS reducing pensionable pay. Something I need to look into.

Regarding it effecting calculation in a redundancy then it may depend if I were making payment SS at the time. I don't expect to be made redundant in the next 3-4 years but it could happen longer term.