Why salary sacrifice might no longer be the best way to drive a plug-in hybrid
For years, salary sacrifice schemes have offered a tax-efficient route to funding a new car – particularly EVs and hybrids.
When it comes to the latter though, recent changes to tax rules now mean that you’re probably better off leasing – particularly if you’re considering a plug-in hybrid.
Here’s what’s changed, and what it means if you’re considering a plug-in hybrid via salary sacrifice.
Salary sacrifice: A quick refresher
Salary sacrifice schemes let you lease a car through your employer by giving up a portion of your gross salary in return for a brand-new car – typically with maintenance and insurance included.
Because the cost comes out of your salary before tax and National Insurance, it’s a tax-efficient way to drive a low-emission vehicle. We’ve looked at how it compares to leasing before and, for EVs, it remains a convincing way of funding one.
This is because EVs still offer extremely low Benefit-in-Kind (BiK) rates – just 2% until at least 2027. However, plug-in hybrids (PHEVs) are now being taxed at a much higher rate. And this is where the problem starts.
Read more: Full hybrid vs plug-in hybrid vs mild hybrid: Which is best for you?
Why hybrids are now less appealing on salary sacrifice
In 2024, the BIK rate for PHEVs increased again, reflecting the government’s push to encourage a switch to fully electric cars. BIK rate for PHEVs is now largely determined by how far they can travel on EV power alone. For example:
- A PHEV with a range under 30 miles will attract a high BIK rate of 14%
- Only the longest-range PHEVS – those capable of more than 70 miles on electric power – qualify for the lowest hybrid BIK rates of 8%
At the moment, there are few plug-in hybrids that meet this 70-mile threshold. In fact in most real-world scenarios PHEVs will achieve between 25 and 45 miles of electric range.
As a result, drivers looking at salary sacrifice schemes will pay significantly more in tax each month compared to chose choosing a fully electric vehicle.
| Electric range (vehicle type) | 2024/25 | 2025/26 |
| 0g/km (EVs) | 2% | 3% |
| Electric range >130 miles (PHEVs) | 2% | 3% |
| Electric range 70-129 miles (PHEVs) | 5% | 6% |
| Electric range 40-69 miles (PHEVs) | 8% | 9% |
| Electric range 30-39 miles (PHEVs) | 12% | 13% |
| Electric range <30 miles (PHEVs) | 14% | 15% |
What’s the impact?
Due to the increased BIK rates on plug-in hybrids, the gap between leasing and funding via salary sacrifice has widened. For example, drivers choosing a hybrid via salary sacrifice may be paying up to £100 per month more than if they had leased the same vehicle personally.
Obviously, this will vary from person to person, depending on income tax rates and the vehicle derivative specifications. In short, there will now be very little difference in overall costs between choosing salary sacrifice or a personal lease on certain hybrid vehicles.
So is salary sacrifice still worth it?
If you’re looking to maximise value via a salary sacrifice scheme, a fully electric vehicle will likely offer far better tax savings. For example, new models like the Renault 5, Hyundai Ioniq 6 and Tesla Model Y Juniper all still qualify for the lowest BIK rate of 2%.
But the financial benefits for plug-in hybrids are now much more limited, and in many cases, leasing a hybrid privately could actually cost less overall.
If you're comparing options, make sure to weigh up the total cost of leasing a hybrid on salary sacrifice versus a private lease. You can find the total lease cost on all deals you find on Leasing.com. Hit the button below to jump straight into plug-in hybrid deals.
