Top tips for managing the cost of company car schemes

Credit: muk woothimanop/Shutterstock

Need to know:

  • Green electric vehicle (EV) salary sacrifice arrangements are growing in popularity.
  • As well as tax savings, EVs can be cheaper to run and maintain, with used cars also a cost-effective option. Employees need to understand how benefit-in-kind (BIK) rates differ for both EV and internal combustion engine (Ice) cars.
  • Education on charge- and fuel-saving driving techniques, as well as advanced driver training, can save on day-to-day motoring costs, as well as insurance premiums, and providers may be able to help with this.

Demand for salary sacrifice arrangements grew by a whopping 68% in the third quarter of 2023, according to the British Vehicle Rental and Leasing Association’s (BVRLA) Leasing outlook, published in 2024. Yet, at the same time, with money tight both for employers and employees, keeping driving and car costs down remains key. Here are some top tips on how employers can help employees better manage their company car costs.

Educate on tax savings

Employers can educate staff about how the tax savings that come with a salary sacrifice electric vehicle (EV) work. Alfonso Martinez, UK managing director at ALD Automotive/LeasePlan, says: “Zero and low-emission company car drivers enjoy lower benefit-in-kind (BIK) tax rates, which are fixed at 2% until April 2025. This will then change to 3% in 2025/26, 4% in 2026/27, and 5% in 2027/28.”

But, employers must explain how BIK savings vary depending on make and model. Oliver Boots, chief commercial officer at Octopus Electric Vehicles, says: “If [an employee] takes a hybrid, for example, [they are] going to pay more BIK tax than [they] would on a pure EV.”

This is also a useful conversation in the context of internal combustion engine (Ice) vehicles. Petrol and diesel cars can have BIK rates that range from 16% to 37%, depending on their age and CO2 emissions.

Determine how to save on running costs

Alongside tax savings, employers can emphasise the day-to-day running cost and maintenance savings that can be achieved through switching to a green EV, especially via a full-service leasing scheme. Chris Last, director at Vivup employee benefits, says: “As well as the BIK tax savings, for employees such cars are generally more reliable, safer, and cheaper to run.”

Daniel Broom, major corporate sales manager at Alphabet, agrees: “[Employees] get the finance of the car, the servicing and maintenance, which includes the MOT, the breakdown cover, accident management and [their] car insurance all included in a salary sacrifice wrapper that [they] pay for before being taxed.”

Consider type of vehicle

Going for a used rather than new vehicle could help to save money. “It might be a car that has come back early, perhaps because that person has left the business or been made redundant,” says Octopus’ Boots. A used car, just as on the open market, will be cheaper than a new car, and so will mean not needing to sacrifice as much salary.”

It is important to bear in mind however that, especially with Ice vehicles, an older vehicle may be more likely to pay Ultra Low Emission Zone (ULEZ) charges, with ULEZs of course being brought in increasing numbers of cities. Therefore, there may be a balance to be struck here in terms of maximising savings.

Equally, and again especially with Ice vehicles, there may be mileage in looking at whether offering some cheap and cheerful lower-spec options may be attractive for employees who want to be part of a company car scheme but are nevertheless focused on the bottom line.

Tap into providers’ knowledge

Employers should lean on their provider for employee education and advice. “As a leasing company, we would help our customers to educate their drivers, especially if they’re transitioning from an internal combustion vehicle to an electric vehicle,” says Alphabet’s Broom.

As with driving a conventional car, there are hacks employees can use to keep down the day-to-day cost of being on the road in an EV. “The way [an employee] drives, brakes and accelerates will affect how much charge [they] use, says Broom. “If [they] drive more carefully and smoothly [they] will use less charge, and therefore save money.” says Broom.

This is the same with Ice vehicles, albeit reducing fuel use rather than charge.

Another tip is to encourage, or even subsidise, drivers to sign up to advanced driving training, such as that offered by the British Safety Council, though there are many others. Not only will this again improve how they drive and therefore reduce fuel or charge and maintenance costs, if the driver is paying for their own insurance being able to show this may reduce their premium.

Educate employees around cost-efficient EV charging

“The cheapest way to charge an EV is overnight at home,” says Octopus’ Boots, adding it makes sense also to be aware of how electricity tariffs change during the day.

Alongside this, it is worth employees understanding the costs of charging in different places. “Charging at a motorway service station with an ultra-rapid charger is going to be the most expensive charging option,” says Boots. “[The employee will] be paying a premium for the convenience of doing that.”

Sign up to our newsletters

Receive news and guidance on a range of HR issues direct to your inbox

This field is for validation purposes and should be left unchanged.

It also stands to reason it can be a good idea to flag up to employees if there are free charging stations locally. Some supermarkets, for example, offer free charging while someone is doing their weekly shop. Some EV manufacturers, too, have their own networks of cheaper charging stations. These tips also work for Ice vehicles, as filling up on the motorway is also usually more expensive than other options. A further tip here is to encourage, or even enforce, the use of mileage logs or trackers; there are now automated ones for smartphones and tablets.

These enable drivers to keep a close track of their mileage and fuel use. This will help the organisation keep better track of what mileage has been for business or personal use but will also help employees better understand the mileage they are doing, how they are using their vehicle and, in turn, how and where these costs can perhaps be trimmed back.