Guidance

Electric vehicle salary sacrifice guidance for academy trusts

Updated 22 December 2023

Applies to England

Key points

• Schemes that present no financial risk if an employee does not fulfil their contractual obligations do not require ESFA approval
• Schemes with potential financial risk to the trust will require ESFA approval
• Trusts under a Notice to Improve (NtI) must seek ESFA approval before entering any scheme
• Trusts seeking approval must demonstrate due diligence through using an appropriate procurement process, seeking specialist advice, and considering mitigations
• Employees should be individually liable for all payments relating to the scheme including early termination costs
• Trusts must ensure that employees remain above national living wage following any salary sacrifice payments and ensure that employees are aware of pension implications of entering a scheme
• Trusts can contact the ESFA via the enquiry form

Overview

The Department for Education (DfE) is committed to support schools and trusts to make the best use of funds and to reach the government’s net zero target.

This electric vehicle salary sacrifice guidance page can be used by trusts considering providing employees with the option to enter a salary sacrifice for electric vehicles for personal and commuting purposes. The guidance provides points to consider, and suggestions to both ensure that potential liability does not fall on the trust, and that risks to the trust are minimised.

As with any procurement, the trust must do its own due diligence on potential suppliers, explore different schemes to find one that delivers value and best suits the needs of their staff (to ensure that the trust meets the procurement requirements of the Academy Trust Handbook (ATH)). Trusts should seek specialist advice from their auditors, legal and HR professionals, to ensure they fully assess the detailed arrangements of how each scheme operates. For a trust under a Notice to Improve (NtI), any type of scheme will require ESFA approval.

Choosing a scheme

There are different ways providers structure their schemes and some types of schemes will not require ESFA prior approval (unless the trust is under an NtI), and for others, the trust must obtain ESFA approval before proceeding.

To avoid the need for ESFA prior approval, the trust must follow its procurement procedures to select a scheme that is structured so that no liability sits with the trust.

Trusts need to check:

• The monthly lease rental payments are collected from salary and paid across to the lease company by the trust. In this instance, the employee is responsible for the vehicle, and the Trust holds a contract with the lease company.
• To comply with HMRC Salary Sacrifice requirements, the trust holds the lease with the EVSSS company as part of their overall contract. ESFA would expect the trust to ensure mitigations are built into their EVSSS scheme setting out clear requirements for employees on vehicle upkeep and maintenance.
• Trusts will need to work with their chosen provider to put in place arrangements within their scheme to manage the risk of these liabilities so that if the vehicle standards for the EVSSS lease are not maintained, the employee is responsible for the cost, through salary deductions and there is no financial liability on the trust.
• Trusts should be clear on the level of liability that falls on the trust if an employee does not fulfil their contractual obligations to the scheme provider, either in terms of damage to the vehicle or missed payments. The responsibility to contact the employee directly to seek redress should sit with the scheme provider, if possible, rather than the trust or arrangements need to be in place to minimise the risk and burden to the trust.
• Trusts must also consider what further arrangements might also be needed to mitigate any potential liabilities.

If the chosen scheme falls outside the brief above, or your trust is under a NtI, you must seek ESFA written approval before entering the chosen scheme.

Trusts can use the Crown Commercial Supplier list to help when selecting an appropriate scheme and there is detailed guidance and advice available on the Crown Commercial web page or by contacting info@crowncommercial.gov.uk.

Planning to introduce a new scheme

ESFA will consider approval for schemes that present minimal financial risk. If entering a scheme with potential risk the trust must demonstrate that they have considered mitigations and planned for potential charges. There are a number of ways the introduction of a new scheme can be planned that will reduce risk and enable trusts to assess the administration costs of running the scheme.

These include:

• trusts need to ensure that they have adequate resources to implement a salary sacrifice scheme, ensuring they comply with HMRC requirements and that they seek appropriate professional advice before setting up a system.
• consider restricting staff uptake of the electric vehicle salary sacrifice scheme for the first year if there is an associated liability with the chosen scheme.
• staggering new joiners onto the scheme to reduce the overall level of potential liabilities at the start of new plans, for example, if more than two employees wish to join the scheme it would be advised to allow three months before the next schemes start.
• setting staff eligibility criteria to ensure continued commitment to the scheme.

Potential eligibility criteria for staff could include:

• staff must meet the thresholds of earnings to ensure that they remain above the national living wage while on the scheme.
• staff must have completed their probation.
• staff must be on payroll (PAYE).
• staff should have a valid and up to date UK driver’s licence.
• staff are not subject to any current performance or conduct-related procedures.

Trusts must record details of each employee to ensure that the eligibility criteria are monitored. Trusts must also ensure that they make appropriate amendments to terms of employment of any participating staff member in advance of entering the scheme.

Support for staff

As with any change in employee terms and conditions, trusts must make sure that employees have access to appropriate support and information.

There are tax and national insurance implications for staff in undertaking a salary sacrifice scheme. Salary sacrifice schemes make a specific impact on pension contributions (both by the individual and the employer), and this will reduce the pension received at the end of the employee’s working life. Trusts should advise that staff secure financial and pensions advice, so they fully understand the personal implications of their decision to join the scheme.

Certain schemes will require employees to have independent advice before entering the contract.

There will be a reduction in the lessee’s pensionable salary.

For example, if the monthly salary is £3000 and the electric vehicle salary sacrifice costs the employee £300 a month. Pension payments from the employee and employer will only be made in relation to £2700. Over the course of a 4/5/6-year contract this will reduce the pension contributions by the employer and the employee.

Managing risks

The trust should also consider potential ways to mitigate against any costs arising from any potential early liabilities associated in certain schemes.

These could include considering:

• specialist insurance cover for these types of schemes – most notably to underwrite any residual, remaining financial risk (if any exist) where early termination charges may apply for example, the trust taking out early termination insurance
• retaining a percentage of any National Insurance and pension employer contribution savings resulting from this scheme to provide a fund to offset any costs or cashflow impacts of any leases ending early (limited to the period when trusts could be liable)

The chosen schemes cost, and the performance should be reviewed annually to ensure the provider continues to offer value to staff and the trust. This review should be done by management and findings should be delivered to the board.

Schemes entered before 1 September 2023

Some trusts may have entered electric vehicle salary sacrifice schemes before guidance was published in the ATH 2023, and these schemes will not require approval from ESFA at this point.

In cases where trusts have entered schemes with no liability, or they are outside of the liability stage of their chosen scheme, the trust does not need to take any further action.

Where trusts are currently on a scheme that presents some financial risk, we expect trusts to put in place appropriate mitigations, and look to move to a scheme that is compliant with the ATH by September 2025.

How to contact us

If you have any questions about electric vehicle salary sacrifice schemes, you can contact us using our enquiry form.