Getting made redundant is stressful enough without worrying about whether you’re about to lose your company car or face a surprise tax bill. If you’ve got an EV on salary sacrifice, here’s what actually happens to the car, the payments, and your tax position when you lose your job.
The three main outcomes
When your employment ends, your salary sacrifice arrangement ends too. That’s the simple bit. What happens next depends on your employer, the leasing company’s policies, and how much of the lease term remains.
1. Your employer pays off the remainder
Some employers, particularly larger ones with formal redundancy policies, will simply settle the outstanding lease as part of your redundancy package. This is the cleanest outcome for you. The car goes back to the leasing company, you walk away with no further obligation, and you don’t have to think about it again.
This isn’t a legal requirement, though. It’s entirely at your employer’s discretion, and it’s more common when the remaining lease term is short or the employer is making redundancies as part of a larger restructure where they’re trying to be seen doing the right thing.
2. You take over the payments personally
Most salary sacrifice providers, including the likes of Octopus Electric Vehicles and LoveElectric, will allow you to continue the lease by taking over the monthly payments yourself. The arrangement converts from a salary sacrifice lease to a personal contract hire agreement in your name.
Here’s where the numbers get interesting. Let’s say your salary sacrifice deduction was £450 per month for a Volkswagen ID.3 with a list price of around £40,000. That £450 was taken from your gross salary before tax and National Insurance. If you’re a basic rate taxpayer, the actual cost to your take-home pay was roughly £315 per month (accounting for 20% income tax and 12% employee NI you didn’t pay on that amount).
When you take over the lease personally, you’ll pay the full £450 per month from your net income, because you’re no longer benefiting from the tax and NI savings. That’s an extra £135 per month, or £1,620 per year, from your actual pocket. If you were a higher rate taxpayer, the jump is even sharper, from around £270 take-home cost to £450.
Some leasing companies will recalculate the monthly payment when converting to a personal lease. This isn’t universal, but it’s worth asking. They might reduce it slightly if the original quote included corporate discounts or volume deals your employer had negotiated.
3. Early termination
If you can’t afford to take over the payments and your employer won’t cover the lease, the car goes back and you’re liable for early termination charges. These typically cover the remaining lease payments, minus what the leasing company can recover by selling or re-leasing the vehicle.
On a car with two years left on a four-year lease, you might be looking at anything from £5,000 to £12,000 in termination costs, depending on the vehicle and how the market’s treating second-hand values. It’s not a small sum. The leasing company will pursue this as a debt, and it can affect your credit rating if left unpaid.
That said, many leasing companies will negotiate a payment plan if you explain the situation. They’d rather get the money in instalments than go through debt collection proceedings.
What happens to your tax position
When you leave, your employer has to sort out your final tax calculation for your P45. Any salary sacrifice deductions you’ve had during the tax year will already have reduced your taxable income month by month, so there’s no clawback of tax relief you’ve already had. That’s done and dusted.
However, if your employer settles the remaining lease for you as part of your redundancy package, this might be treated as a benefit in kind and could be taxable. Whether it is depends on the specific circumstances and how it’s structured. The same goes if they make a payment to help you take over the lease. These are the sorts of details your HR department should clarify in your redundancy paperwork, but it’s worth asking explicitly if it’s not clear.
Your redundancy payment itself has its own tax treatment (the first £30,000 is tax-free at the time of writing), and that’s separate from what happens with the car.
Can you port the scheme to a new employer?
In short, no. Salary sacrifice arrangements are between you, your employer, and the leasing company. You can’t transfer the existing agreement to a new employer even if they offer salary sacrifice cars.
What you can do is take over the lease personally (as described above) and then, if your new employer offers salary sacrifice, enter into a new agreement for a different vehicle once you’re eligible. Some employers make you wait through a probation period before you can access benefits like this, so you might be funding the old car personally for several months.
Little-known rights and practical steps
Check your employment contract and the salary sacrifice agreement documents. Some agreements specify what happens in redundancy situations, and occasionally you’ll find that the employer has committed to covering the lease or offering you favourable terms to continue it.
If you have any notice period still to work, your salary sacrifice continues as normal during that time, which reduces the outstanding lease value and gives you breathing room to decide what to do.
Contact the leasing company directly as soon as you know redundancy is on the cards. Don’t wait for your employer to do it. Ask them explicitly what your options are, what the early termination cost would be, and whether they’d let you take over the lease. Get this in writing.
If early termination costs are eye-watering and you can’t take over payments, ask whether there’s any flexibility. Some leasing companies will reduce termination fees in genuine redundancy situations, particularly if you can show you’ve immediately lost income through no fault of your own. They don’t advertise this, but it’s sometimes available if you ask.
Finally, if you’re taking over the lease personally, check whether your car insurance needs updating. The policy might have been tied to your employment or arranged through your employer, and you’ll need to make sure you’re properly covered once the car’s in your name as a private lease.
The best time to think about this is before you sign up for salary sacrifice in the first place. If your job feels precarious or you work in a volatile industry, a four-year commitment to a car lease that becomes significantly more expensive if you lose your income might not be the right move, even with the tax advantages.