MHA | Pressure on Electric Vehicles Sales - ZEV Opportunities

Pressure on Electric Vehicles Sales - ZEV Opportunities

Alastair Cassels · Posted on: September 27th 2023 · read

Charging Electric Car

We've recently speculated on the impact that the ZEV Mandate will have on the UK automotive sector over the coming months.

If you’ve not followed this, it can be summarised as follows:

  1. By 2030, 80% of OEM sales must be Zero Emission Vehicles (ZEVs)
  2. Between 2024 and 2030 OEMs must sell minimum levels of ZEVs.
  3. Those not meeting the targets in 2024-26 can choose to buy credits from OEMs who have surplus, borrow credits or pay a fine of £15,000pu.

Whilst there is a bit more nuance to the expected legislation, we think it will have a huge impact on the UK market in the coming years. Potentially it will lead to a market reduction as OEMs elect to reduce volumes to avoid fines, pressure for dealers to register EVs and incentives to prioritise the sale of EVs.

We won’t be surprised to see OEMs introduce volume incentives or penalties to ensure that each dealer is managing the mix of registrations in line with the ZEV mandate. This means that we may see the return of self-registrations if dealers cannot find customers for an increased supply of EVs.

Given some of the residual value corrects we have seen on EVs during 2023, it would be natural for dealers to be cautious about the prospect of registering additional demos or adding to the used car stock pool that OEM incentives seldom cover depreciation in the short term.

However, there are some measures that can be taken to not only offset the financial impact of increased EV supply but also to allow more drivers to become advocates for EVs.

Salary Sacrifice

The market for Salary Sacrifice cars grew by 41% YOY as at the end of Q1 2023. What is of more relevance is the fact that 91% of the vehicles fleeted were Battery Electric Vehicles (EV). Given that we have witnessed a softening of EV demand within the private buyer market, it follows that the tax efficient route of Salary Sacrifice is an attractive option to place vehicles into. The absence of incentives from government in terms of scrappage allowances or the now expired Plug in Car Grant, means that we would expect more EVs to be pushed into this channel.

The driving force behind the growth in Salary Sacrifice for EVs is the substantially lower Benefit in Kind (BiK) tax rates, which yield advantageous savings for both employers and employees. Currently BiK for EVs is set at 2% but is set to increase to 5% by tax year 2027/28, therefore, the sooner companies explore this route of providing the employee benefit, the better value is represented.

How does it work?

Salary Sacrifice involves a mutual agreement between an employee and employer, whereby the employee agrees to forego a portion of their gross salary in exchange for acquiring a benefit, such as an EV company car. This mutually beneficial agreement yields a dual impact: first, it leads to a reduced taxable income for the employee from both a Pay As You Earn (PAYE) and National Insurance Contributions (NIC) standpoint; second, it offers the potential for employers to enjoy NIC relief, thereby generating additional cost savings.

The landscape of salary sacrifice is governed by His Majesty’s Revenue and Customs (HMRC) Optional Remuneration Arrangements (OpRA) rules. These regulations, designed to ensure equity and transparency, with the employee being taxed based on the higher of the BiK value attributed to the benefit or the amount foregone (sacrificed) by the employee. However, there is an exception to these rules for Ultra Low Emission Vehicles (ULEVs), defined as those emitting 75g/km of carbon dioxide or less. Under this exemption, employees are exclusively taxed on the BiK associated to the car, regardless of the salary sacrifice amount sacrificed. The distinction positions EV Salary Sacrifice as a method to help subsidise the costs of providing EVs within their organisation.

Employer and Employee Benefits

The benefit of EV Salary Sacrifice extends beyond tax efficiencies – it has a direct impact on employees’ take-home pay. A thorough comparison between an employee participating in EV Salary Sacrifice scheme and another receiving the higher pre-sacrifice gross pay who funds their own vehicle out of net pay, often results in the employee with the Salary Sacrifice having a higher net pay with all things considered.

With a lack of EVs priced under £30,000 and some nervousness around residual values in the Used Market, the Salary Sacrifice route into an EV company car may be the most cost-effective way of encouraging staff to switch from an ICE vehicle.
From an employer perspective the schemes are attractive in two key areas.

  1. At a time when wage inflation is increasing operating costs in many UK businesses, improving employee benefits outside of salary increases is an attractive prospect.
  2. For those businesses who are now looking to impact on scope 3 emissions as part of a carbon reduction plan placing employees in zero emission vehicles for their commute and business use will materially reduce the carbon footprint.

In addition to this, the expansion of ULEZ in UK cities can effectively levy a tax on non-compliant vehicles which may mean there is a secondary benefit for employees who are commuting into the ULEZ area and would not be normally compensated by their employer.


Before implementing a Salary Sacrifice scheme, businesses are strongly advised to take appropriate advice.

The intricacies of the process encompass legal, financial, and HR considerations, making it essential to engage the expertise of professionals who specialise in these complexities. MHA currently provide advice and guidance to a number of motor and non-motor clients as to how to implement and manage a Salary Sacrifice scheme.


The ZEV Mandate will increase the pressure on car manufacturers to increase the share of EVs during the next 5-6 years. Currently, demand is being disproportionately attributed to the business channels where UK taxation rates are effectively providing a discount to EV ownership vs buying privately.

With an election looming, recession still plausible and high interest rates set to persist for the next 18 months, we think the low BiK rates will continue to offer a more affordable route for many drivers. Any EV inventory build-up will have to be avoided so we anticipate more pressure on dealers to register cars and more volume available for the fleet channels.

EV Salary Sacrifice represents an opportunity for businesses to align their objectives with sustainability and fiscal prudence. By capitalising on the benefits of reduced tax liability, environmentally conscious transportation, and corporate social responsibility, businesses can move toward a greener future while optimising their financial outcomes.

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