Salary sacrifice car schemes are an increasingly popular way for employees to drive new vehicles while benefiting from tax efficiencies. But when it comes to choosing between a Plug-in Hybrid (PHEV) and a fully Electric Vehicle (EV) under this arrangement, the decision can impact both your monthly take-home pay and your driving experience.
This article compares the key differences between EVs and PHEVs within the context of a salary sacrifice scheme and introduces how Cocoon Vehicles offers even more flexibility.
What is a Salary Sacrifice Car Scheme?
A salary sacrifice car scheme allows employees to lease a car by exchanging a portion of their gross salary. This reduces the employee’s taxable income, offering savings on income tax and National Insurance. The lease typically includes:
Servicing and maintenance
Road tax
Breakdown assistance
Optional insurance and tyres
However, it’s important to note that while there are tax savings, the employee will still pay Benefit-in-Kind (BIK) tax, which varies depending on the vehicle’s CO₂ emissions and electric range.
EV vs. PHEV in a Salary Sacrifice Scheme
Tax Efficiency and Benefit-in-Kind
Electric Vehicles (EVs) attract a very low BIK rate — currently just 2% until at least 2025 — making them extremely tax-efficient.
Plug-in Hybrids (PHEVs), on the other hand, can attract BIK rates anywhere from 8% to 16% or more, depending on their electric range and emissions. While still better than traditional petrol or diesel cars, PHEVs are not as tax-efficientas fully electric vehicles.
Advantage: Electric Vehicles
Driving Practicality
EVs are ideal for city and suburban use, with lower running costs and zero tailpipe emissions. However, they require regular access to charging points, which may not be practical for all drivers.
PHEVs offer flexibility, using electric power for short commutes and switching to petrol for longer journeys. This makes them ideal for drivers with inconsistent mileage or limited access to EV charging infrastructure.
Advantage: Plug-in Hybrids
Running Costs
EVs benefit from lower maintenance costs due to fewer moving parts and cheaper ‘fuel’ in the form of electricity. Their favourable tax treatment also reduces overall cost of ownership under a salary sacrifice arrangement.
PHEVs may offer some savings when driven primarily on electric power, but servicing costs can be higher due to the complexity of dual powertrains. Petrol usage further increases running costs over time.
Advantage: Electric Vehicles
Vehicle Choice and Availability
Both EVs and PHEVs are widely available, though EV lead times may vary depending on manufacturer and demand. PHEVs remain popular due to the breadth of models on the market.
Advantage: Tie – depends on model preference and lead time
Unique Flexibility with Cocoon Vehicles
At Cocoon Vehicles, we do salary sacrifice differently. We offer:
Car Subscriptions
Short-Term Car Leases
Both of these can be used within a salary sacrifice scheme, allowing employers and employees to trial a vehicle over a shorter period before making a longer-term commitment.
This approach is ideal for businesses adopting electric fleets or employees new to EVs or salary sacrifice schemes. It reduces risk while still providing all the benefits of salary exchange, including National Insurance and tax savings.
Want to try an Electric Car for 3 months before committing to a 3-year lease? With Cocoon, you can.
Conclusion
| Feature | Electric Vehicle (EV) | Plug-in Hybrid (PHEV) |
|---|---|---|
| BIK Tax Rate | Lower (2%) | Higher (8–16%+) |
| Running Costs | Lower | Medium to High |
| Environmental Impact | Zero emissions | Low (if used correctly) |
| Driving Flexibility | Limited by charging | Highly flexible |
| Long-Term Cost Efficiency | Higher | Moderate |
For those seeking maximum tax savings and lower running costs, fully electric cars remain the clear winner. But for drivers who need flexibility and aren’t ready to go fully electric, plug-in hybrids can offer a practical middle ground.
And with Cocoon’s unique approach, you don’t need to commit right away. Our salary sacrifice-compatible car subscriptions and short-term leases allow you to test the waters, reduce risk, and make informed long-term decisions.
Get in Touch
Interested in setting up a salary sacrifice scheme with flexibility built in? Get in touch with the team today and we’ll walk you through the best options for your business or personal circumstances. Call us on 01332 290173 or via our ENQUIRY FORM at the bottom of this article.
