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National Insurance rise set to boost appeal of EVs, Arval says

Date: 17 September 2021   |   Author: Sean Keywood

The increase in National Insurance (NI) contributions recently announced by the UK Government is set to further strengthen the financial appeal of EVs as company cars.

That's according to leasing company Arval UK, which also believes the change will make EVs more attractive within salary sacrifice schemes.

Arval consultant Richard Cox explained that the NI increase, set to come into force in April 2022, would improve the relative cost position of low-carbon vehicles compared with others.

He said: "While there is an increase for EVs, it is much lower than for PHEVs and much, much lower than for ICEs." 

According to Arval, the NI change will mean an £11.67 increase in monthly employer NI payments on a £40,000 petrol or diesel car, compared with a £5.62 increase for a £45,000 PHEV, and just a £1.04 increase for a £50,000 EV.

Cox 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 that at 1.25%, because employees do not pay NI on benefits.

Cox said: "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."

Cox said the increase would have the smallest impact for companies using a whole-life cost model for their vehicle choice lists. 

He said: "A whole-life cost-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."

As for salary sacrifice, Cox added: "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."