A guide to salary sacrifice cars: electric, hybrid or petrol?

Any car can be offered through salary sacrifice. But the tax rules only reward cars with CO2 emissions of 75g/km or below, and the lower a car's Benefit-in-Kind rate, the bigger the saving. This means electric cars work well on a salary sacrifice scheme, followed by hybrid cars which still have some savings. Leaving petrol and diesel cars on the scheme with little to no benefit.

• Salary sacrifice cars are taxed as a Benefit-in-Kind (BiK). The saving is the tax your employee no longer pays on the sacrificed salary, minus the tax they pay on the car.
• An electric car is taxed at 4% of its list price for the 2026/27 tax year. A typical petrol car is taxed at 25% to 37%. That disparity in the BiK rate is the reason EVs make so much more sense with salary sacrifice.
• Hybrid cars on salary sacrifice sit in between for now. From April 2028 they’ll all be taxed at 18% BiK, whatever their electric range.
• Cars that emit more than 75g/km of CO2 lose the salary sacrifice tax benefit altogether. HMRC taxes either the salary given up or the BiK value, whichever is higher.
• As the employer, your National Insurance saving is the same whichever car is chosen. But the Class 1A charge you pay on the car rises with its BiK rate.
• Salary sacrifice isn't for electric cars only, but in practice they make the most sense when choosing a scheme. 

A salary sacrifice car is a car leased through an employer, with the driver paying for it from their pre-tax salary. The employee gives up an agreed amount of pay before Income Tax and National Insurance are worked out, getting a car in return. With Octopus EV, drivers get insurance, servicing, maintenance & repairs, MOTs, road tax and breakdown cover all included in their monthly salary sacrifice payment too.

The car is a taxable benefit, so the driver pays Benefit-in-Kind tax on it, set by the car's CO2 emissions and list price.

In most cases it’s a yes for a fully electric car, based on the tax savings. And employees paying higher-rate tax can save even more. Income Tax & National Insurance, vs Benefit in Kind pull in opposite directions, and only a low-CO2 car keeps them far enough apart to leave a saving.

The first lever is the salary given up. Income Tax and National Insurance are no longer paid on it, so take-home pay falls by less than the amount the employee is sacrificing. The second lever is Benefit-in-Kind, a percentage of the car's list price set by CO2 emissions and, for hybrids, electric range. The saving is determined by lever one minus lever two. A 4% BiK rate barely dents it, whereas a 32% BiK rate wipes it out.

The same logic applies to your business. You save 15% Class 1 National Insurance on the salary your employee gives up, because employer National Insurance is 15% for the 2026/27 tax year. But you pay 15% Class 1A National Insurance on the BiK value of the car. A high BiK rate turns your savings into a cost.

So which salary sacrifice cars keep the saving?

HMRC calls salary sacrifice an ‘optional remuneration arrangement’. Under those rules, a benefit is normally taxed on whichever is higher, the salary given up or the benefit's own value.

Cars are the exception to this rule. HMRC's guidance on salary sacrifice and PAYE says that for cars that emit no more than 75g/km of CO2 emissions, you should always use the earnings charge under the normal Benefit-in-Kind rules. Every fully electric car qualifies, and so do most plug-in hybrids.

Above 75g/km, the taxable value is the higher of the salary sacrificed or the BiK charge. So a petrol or diesel car through salary sacrifice is taxed on at least the full salary given up. The arrangement saves nothing, and usually costs more than paying for the car from the employee’s take-home pay.

The rate of Benefit-in-Kind to pay depends on the car’s fuel type, and is also based on the car’s list price. Here’s how they compare: 

These rates are from GOV.UK's CO2 emissions tables and its company car tax rates for 2028 to 2030, updated in September 2026. These numbers are subject to change.

Diesel cars carry a 4 percentage point supplement unless they're certified to the Euro 6d standard, capped at the maximum rate. To see the electric rates in more depth, read our BiK explainer.

From 6th April 2028, every car in the 1 to 50g/km band will be taxed at 18%, rising to 19% the year after, whatever its electric range. Whereas fully electric cars are at just 7% and 9% in the same years.

The length of the contract matters when you see those rates changing over the next few years. A 36-month agreement signed this autumn runs until autumn 2029, so a hybrid chosen today for its 7% rate spends the last 18 months at 18%. 

The driver's monthly cost goes up part-way through, and so does the employer’s Class 1A bill. Employers aren't always told this from the offset.

New emissions standards from 1st January 2025 record higher CO2 figures for plug-in hybrids than the old test did, which pushes up their BiK. The government's answer is a temporary easement: qualifying plug-in hybrids registered on or after 1 January 2025 with a recorded CO2 figure of 51 or more are treated as 1g/km for BiK. It runs to 5 April 2028, with transitional arrangements for existing contracts to 5 April 2031 at the latest.

In plain terms, the hybrid rates above hold because of a stopgap, and the stopgap ends in April 2028. The same month the 18% flat rate arrives.

This is an illustration, not a quote. It uses England, Wales and Northern Ireland rates for the 2026/27 tax year, checked in September 2026. Scottish rates differ. Individual results depend on salary, tax band, car and tax year, and a real quote also depends on postcode, contract length and annual mileage.

In this example, the employee earns £60,000, and sacrifices £6,000 a year of pre-tax salary. 

We compare three cars, each with a £40,000 list price: a fully electric car (4%), a plug-in hybrid with a 40 to 69 mile electric range (10%), and a petrol car in the 130 to 134g/km band (32%). 

The employee pays 40% Income Tax on the sacrificed amount and 2% National Insurance, because their earnings sit above the upper earnings limit. The BiK percentages come from the 2026/27 tax year tables.

Look at the petrol column. The driver gives up £6,000 of salary and their take-home pay falls by £8,640. They'd have been better off paying through their net pay. 

With the hybrid car, the driver effectively pays £5,080 for the same car, saving £920. Whereas the electric car driver's take-home pay falls by £4,120 for the same £6,000 of car.

Here’s the flipside for the employer:

One electric car saves £660 a year in this example. One petrol car costs £1,020. That gap scales with take-up so look at how many employees you expect to take a car to work out your potential employer savings from EV salary sacrifice. 

For the employer, the benefits of salary sacrifice are a National Insurance saving on every pound sacrificed, a benefit that doesn't add to the salary bill, and a fixed term that gives people a reason to stay. 

Employees pay less for a newer car than it would cost from their take-home pay, with the running costs in one monthly payment. What’s not as well known, is that you don’t get the same benefit for every type of car. Here’s how they stack up. 

The pitfalls of salary sacrifice fall into two groups. The first applies to any salary sacrifice benefit. The second is specific to offering the wrong cars.

• A lower salary follows the employee into everything worked out from pre-tax pay. Pension contributions can fall unless the scheme bases them on pre-sacrifice pay. Statutory maternity, paternity and redundancy pay are usually calculated on the lower figure. Mortgage lenders assess the reduced salary. Tell your team to consider this before they sign, because most won't think to ask.
• There's a pay floor. Salary sacrifice can't take anyone's pay below the National Minimum Wage, which is £12.71 an hour for workers aged 21 and over from 1st April 2026. If much of your workforce is paid near that level, you’ll need to be clear about who can and can't get a car on the scheme.
• It's a commitment. Most arrangements run for a fixed term, and leaving early can carry a cost depending on the scheme rules and what the provider covers. Ask about resignation, redundancy, long-term sickness and parental leave before committing.
• What about the downfalls of salary sacrificing that emit CO2? An employee who takes a petrol car through salary sacrifice can end up worse off than if they'd paid for their car themselves, and they're likely to blame the scheme. A mixed-fuel scheme also complicates the communications you need to share with your team.

Yes. Hybrid cars on salary sacrifice keep the tax treatment as long as they emit 75g/km of CO2 or less, and most plug-in hybrids do. But their Benefit-in-Kind rate is higher than an electric car's. From April 2028, every plug-in hybrid will be taxed at 18% BiK, so the savings will shrink part-way through a typical contract.

Not over a typical contract. Hybrids used to be a cheap way to drive through salary sacrifice, and some still look like they are, on day one at least. A plug-in hybrid with a 70 to 129 mile electric range is taxed at 7% for the 2026/27 tax year, against 4% for an electric car. The gap gets wider once the 2028 changes kick in.

Here's what that looks like over a 36-month contract. 

This is an example, not a quote. It assumes a £40,000 list price, a 40% taxpayer and a contract running from 1st October 2026 to 30th September 2029. That covers half of the 2026/27 tax year, all of 2027/28 and 2028/29, and half of 2029/30. It uses today's published BiK rates. In this example, the hybrid driver pays £3,280 more Income Tax on their car than the electric car driver. The employer pays £1,230 more in Class 1A. Individual results depend on salary, tax band, car and contract dates.

And here's how the Employer Class 1A National Insurance bill grows as the number of cars on your fleet increases, comparing an all-electric fleet with a hybrid one. 

These numbers show the total cost over a 3 year contract, not a single year. They use the same assumptions as the table above. A £40,000 list price per car and a 36-month contract running from October 2026.  

The reasons are legitimate. No driveway or off-street parking. Very high daily mileage. Towing. Worry about running out of charge on a long trip. Or they've driven a hybrid before and liked it.

Most of those reasons people want the option of a hybrid are actually charging problems. A driver without a driveway needs a public charging credit and a roaming network, not necessarily to revert to a petrol engine. 

There were more than 115,000 public charge points in the UK in August 2026, according to Electroverse's latest report. A driver who’s worried about range needs to know the real-world figure for the car they're looking at, which you’ll find on our website. 

Towing and very long days are real needs, but a car scheme doesn't have to serve every driver to be worth running.

Five questions to ask your team before you decide:

1. How many employees have off-street parking or workplace charging?
2. What's their realistic weekly mileage, not the occasional worst day?
3. How long will contracts run, and where does that land against the BiK timetable?
4. Can payroll handle two tax treatments, or would it rather handle one?
5. What does the Class 1A forecast look like under each option?

The decision is yours, and for advice on your own scheme, speak to a qualified accountant or tax adviser. If your real question is whether to replace a company car scheme or car allowance, that's covered in our car allowance comparison.

What will your team actually pay? Less than most expect, for three reasons.

1. List price determines the Benefit in Kind tax. A £30,000 electric car carries £1,200 of BiK value at 4%. A £60,000 one carries £2,400. Smaller EVs and approved used EVs keep both the monthly figure and the tax down, and widen the group who can join without going near the pay floor.
2. Higher-rate taxpayers save the most. Someone paying 40% or 45% Income Tax on the sacrificed salary keeps more of each pound than a basic-rate taxpayer.
3. The payment replaces several bills. With Octopus EV, insurance, servicing, maintenance, tyres, road tax and breakdown cover are included in the monthly figure. So the number on the payslip replaces the car payment, the garage bills and the insurance renewal.

What's included in the monthly figure varies by provider, so if you’re looking at different providers, compare packages rather than headline prices. Here's what our salary sacrifice scheme includes.

For the driver:

• The car, servicing, maintenance, tyres, road tax and breakdown cover in one monthly figure. Insurance is included as standard. 
• A charging offer to suit them:
  • £400 off an Octopus Charge home charger and installation for drivers with a driveway
  • £400 public charging credit through Electroverse, paid quarterly over the lease, for drivers without off-street parking 
  • Or £400 off home charging for drivers who already have a home charger, paid £100 a quarter. The full terms are here.
• Access to Intelligent Octopus Go - EV Saver, Octopus Energy's home charging tariff. The discounted rate is exclusive to Octopus EV drivers.
• 8% discount on public charging through Electroverse, with one card, one app and one bill. You’ll need to switch your home energy to Intelligent Octopus Go to take advantage of this. 

For the employer:

• There's no set-up fee, and no minimum number of orders.
• Eligibility checks run automatically, so nobody can order a car that would take their pay below the minimum wage. You just need to check that the information they’ve given is correct. 
• Order approvals, take-up tracking, carbon reporting and payroll reports all sit in your HR dashboard.
• Early termination protection covers you and your team when circumstances change, and they need to end a contract early.
• Electric cars only. We don't offer hybrids, petrol or diesel cars on salary sacrifice, for the reasons in this article.

Everything above is about tax, and tax is the reason to choose an electric car on a salary sacrifice scheme. The running cost saving is a bonus on top. It's what drivers notice every month afterwards.

Charging at home on Octopus Energy's Intelligent Octopus Go - EV Saver tariff costs as little as 2p per mile, compared with 18p per mile for petrol. That's based on an MG4 against a Volkswagen Golf. A hybrid only gets close to the EV figure when it's charged and driven on the battery. Run on petrol, it costs around the same as what a petrol car costs to run. 

No. Any car can be put through a salary sacrifice arrangement. But only cars with CO2 emissions of 75g/km or below keep the tax treatment that makes it worthwhile, and only fully electric cars keep most of the savings. Some providers offer every fuel type. We offer electric cars only, so drivers get the maximum tax saving.

Some providers will offer them, but the tax rules work against it. Above 75g/km, HMRC taxes the higher of the salary given up or the Benefit-in-Kind value, and BiK on a petrol car runs at 25% to 37% of list price. In most cases the driver pays more than they would from take-home pay.

Yes. As the employer, the car is a taxable benefit you report to HMRC and pay Class 1A National Insurance on. From 6th April 2027, company cars must be reported through payroll in real time rather than on a P11D after the year end. Your provider should give you the figures.

There’s an element of risk you’re taking on as a business by running the scheme, in that some reasons for returning the car aren’t covered by early termination protection. When cars need to be returned early and aren’t covered, we charge 50% of the remaining lease cost ,which you’ll then need to claim back from the employee. This is at your discretion, and you may choose to forego the cost, but that’s your call. 

A lower salary affects your employees' pension contributions, statutory pay and mortgage affordability, so tell them before they sign. 

Sacrifice can't take pay below the National Minimum Wage. And offering petrol or hybrid cars can turn your National Insurance saving into a Class 1A cost.

If you're the employee being offered the scheme, the best salary sacrifice cars on tax alone are fully electric, with a list price you're comfortable paying 4% of each year. A smaller or approved used EV keeps the monthly figure down. Our employee guide walks through what comes out of your payslip.