Car tax benefit in kind rates should be “retained” at their current levels but more long-term planning is needed, according to politicians.
The House of Lords Environment and Climate Change Committee called on Rishi Sunak and the Government to “plan” for how the scheme could end in years to come.
Low benefit-in-kind fees have been praised as a success story behind the surge in electric car adoption.
Salary sacrifice schemes offer employees the chance to give up part of their wages in return for a low-emission vehicle.
An employee’s earnings is deducted before tax and used to pay leasing deals, reducing the amount of tax paid on their wages.
Employees pay benefit-in-kind rates for company car deals but these are as low as two percent for electric models compared to over 35 percent for the most polluting cars.
But, the Committee has stressed that there was currently no long-term plan in place for the scheme’s future.
The report read: “The EV leasing market has performed well, and salary sacrifice and benefit-in-kind incentives have been successful.
“Low benefit-in-kind rates should be retained, though as with all other financial incentives, the Government must plan for how they will be tapered and exited.”
While collecting evidence, the Committee heard that lower benefit-in-kind rates had been “the single most effective intervention to date” to incentivise the uptake of EVs.
The British Vehicle Rental and Leasing Association (BVRLA) said 91 percent of new salary sacrifice cars in the first quarter of 2023 were fully electric battery EVs.
BVRLA data shows that 60 percent of salary sacrifice users are basic rate taxpayers.
However, finance providers generally recommend that no one with income below £27,000 gets involved in the scheme.
But, The Electric Vehicle Association England was positive about the scheme and its effect on the market.
The group told the Committee that the charges “remain the one existing government policy that is having a positive impact on the uptake of EVs”.
The Association added that they “have seen an increase in the popularity” of the option as more switch to electric vehicles.
The Committee said there were calls from industry for salary sacrifice to be extended to more businesses.
They said this could come in the form of mandating companies with over 50 employees to offer the scheme.
