Can I have a hybrid car on salary sacrifice?

Is it possible to salary sacrifice a hybrid car? It’s a question we’re often asked and the answer is, of course!

It’s quite understandable why many drivers feel uncertain about switching to fully electric: nervousness about the charging infrastructure; worries about new technology; and uncertainty over the cost of electric vehicles (EVs).

These are hurdles that don’t lie in the way of hybrid cars.

Hybrid cars don’t need to be charged up with electricity. Instead the petrol engine maintains charge in a small battery, providing battery electric power when parking or moving off, for instance, or helping provide an uplift in economy. Unlike an EV, hybrids cannot run in battery mode for any sustained period (about half a mile is usual).

Hybrid technology is familiar – it’s like driving a petrol car with some electrical assistance – and there are plenty of fuel filling stations to fill up the petrol tank. And most hybrid cars are less costly than equivalent EVs.

So how does a hybrid car work on salary sacrifice?

Like any salary sacrifice programme, you ‘sacrifice’ an amount of your gross salary for the car’s monthly rental, which includes maintenance and insurance. This lowers your gross salary which provides tax and National Insurance savings. However, there is some company car tax to pay, because HMRC regards the car as a benefit.

Nevertheless, the net amount you pay for the use of the hybrid vehicle is still less per month – by £38 in our example below – than you would pay if you were to lease the car yourself out of taxed salary on a Personal Contract Hire (PCH) agreement. See our table below based on the Lexus UX SUV model:

Lexus UX 250h 2.0 F-Sport Design 5dr CVT

Leasing term is based on a 3+33 profile at 10,000 miles pa

But are you missing out on potential salary sacrifice savings with a hybrid car?

Certainly having a hybrid car on salary sacrifice costs less than personally leasing the same vehicle. But it overlooks the significant savings to be enjoyed if you salary sacrifice an electric car.

Let’s take the same Lexus model – the UX SUV – and look at what you could save if you took the electric version on salary sacrifice.

While the electric UX version is more expensive, the tax savings are extensive, particularly around benefit in kind taxation.

In total, the electric Lexus UX gives you £445 per month more in your takehome salary than the hybrid model. Over the three years of the salary sacrifice agreement, that’s more than £16,000 in savings.

Here are the figures in detail:

Lexus UX 300e 150kW 72.8 kWh 5dr E-CVT

Leasing term is based on a 3+33 profile at 10,000 miles pa

So while it’s entirely possible to have a hybrid car on salary sacrifice, it is a much more expensive option than having an electric car on salary sacrifice, helped by the fact that EVs enjoy healthy tax breaks thanks to their zero emissions. And the prospect of saving £16,000+ over a three year period might be sufficient encouragement to choose an electric car.

What if I wanted to choose a plug-in hybrid on salary sacrifice?

A plug-in hybrid electric vehicle (PHEV) offers a real intermediate step between a car with an engine and a fully electric vehicle.

PHEVs have both a small battery and either a petrol or diesel engine. You can leave the car in auto mode and the car’s electronic brain will work out the optimum balance of efficiency between battery and engine for you. But, with most PHEVs having a zero emission range of somewhere between 20 and 80 miles, a commute to work in EV-only mode is entirely feasible.

A PHEV can also overcome the fear of running out of battery power because the car can continue using its petrol or diesel engine should it be required.

However, be wary of official mileage figures for PHEVs, which are unduly optimistic. In the example of the eGolf we’ve looked at below, its quoted mileage is an astonishing 706mpg, but you would need to drive in EV mode virtually all the time to achieve that figure.

Nevertheless, PHEVs can provide a really good ‘halfway house’ for drivers concerned about taking the full step to electric driving.

What’s more, plug-in hybrids can be very effective on a salary sacrifice programme.

Below we have compared the Volkswagen Golf plug-in hybrid against its electric equivalent, the ID.3. Both cost a similar amount and the cost comparison continues in terms of the net amount of salary that you will swap against either of these Volkswagen hatchbacks: the PHEV Golf is marginally more expensive by £2 and there’s nearly double the amount of benefit in kind tax to pay – but given the PHEV’s currently low tax position this still works out less than £80 a month.

Leasing term is based on a 3+33 profile at 10,000 miles pa

So a plug-in hybrid can work well on salary sacrifice?

Yes, as you can see from our comparison above. While the EV remains the most cost-effective option, the plug-in hybrid is very competitive.

However, there is a limited time window to benefit from a plug-in hybrid on salary sacrifice. In the August Budget 2024, the Chancellor has firmly put the focus on EVs as the preferred choice for both fleets and salary sacrifice drivers with new benefit in kind rates that favours EVs.

From the 2026/27 tax year, the benefit-in-kind rates on PHEVs starts to rise dramatically, while those for electric cars continue to remain low.

In the case of the plug-in Golf illustrated, its BIK rates are:

2026/27 7% versus EV on 4%
2027/28 8% versus EV on 5%
2028/29 18% versus EV on 7%

In other words, if you want to salary sacrifice a plug-in hybrid car you should do so now before rising benefit in kind rates erode its competitiveness. And you should also ensure that you are out of the contract before the 2028/29 tax year commences otherwise you will end up paying a significant increase in benefit in kind tax on the plug-in hybrid.