Plug-in hybrid company cars are a popular choice for tax-conscious businesses and employees. Thanks to their low CO2 emissions and electric range, they offer significant savings through reduced Benefit in Kind (BiK) tax rates.
This helps employers to cut costs while giving employees a more efficient, eco-friendly vehicle.
But from April 2025 onwards, the legislation is changing. Gradual changes to BiK rates mean that plug-in hybrids will become steadily less attractive from a tax perspective, especially from April 2028 when a flat rate will apply to most low-emission vehicles.
These changes will affect both how much tax employees pay on their company car and how much employers owe in National Insurance.
In this guide, we’ll break down everything you need to know about the upcoming changes, including the new BiK rates, how tax is calculated and planning ahead for a more tax-efficient decision.
What Is Benefit in Kind (BiK) Tax for Company Cars?
When an employee receives something of value from their employer that isn’t part of their salary, it’s known as a Benefit in Kind and company cars are one of the most common examples. If a business provides a vehicle for personal use, HMRC treats that as a taxable benefit.
The tax you pay on a company car is based on its list price and how much CO2 it emits. The higher the emissions, the higher the percentage used to calculate the taxable value. This means choosing a low-emission or electric vehicle can significantly reduce the amount of BiK tax you pay.
For employers, this benefit doesn’t just affect the employee’s tax bill, it also triggers an Employer’s National Insurance Contribution (NIC) on the value of the benefit. So selecting the right company car can have financial implications on both sides.
Why Plug-in Hybrids Have Been a Popular Tax Choice
Plug-in hybrid vehicles have offered the best of both worlds with reduced emissions and electric range, without the range anxiety that comes with fully electric vehicles. From a tax point of view, they’ve also been one of the most efficient choices.
Until now, hybrids with CO2 emissions under 50g/km have benefited from very low BiK rates, with further reductions depending on their electric-only mileage. The greater the electric range, the lower the BiK percentage.
In practical terms, this has meant much lower personal tax bills for employees, and lower NIC bills for employers, especially when compared to traditional petrol or diesel vehicles.
But with policy changes on the horizon, those advantages are starting to shift. The government has laid out a roadmap for phasing out these incentives, meaning plug-in hybrids won’t remain the tax-saving vehicles they once were.
Benefit in Kind Tax Changes 2025–2030
From 6 April 2025, BiK rates will begin to rise year-on-year for low-emission hybrids. And from April 2028, there’ll be one flat BiK rate for all cars with CO2 emissions between 1–50g/km, regardless of how far they can travel on electric alone.
Fully electric company cars will also see gradual increases, but at a much slower pace, keeping them the more tax-efficient option overall.
Here’s how the BiK rates are set to increase over the next five tax years:
| CO₂ Emissions (g/km) | Electric Range (miles) | 2025/26 | 2026/27 | 2027/28 | 2028/29 | 2029/30 |
| 0 (Fully Electric) | N/A | 3% | 4% | 5% | 7% | 9% |
| 1–50 | Over 130 | 3% | 4% | 5% | 18% | 19% |
| 1–50 | 70–129 | 6% | 7% | 8% | 18% | 19% |
| 1–50 | 40–69 | 9% | 10% | 11% | 18% | 19% |
| 1–50 | 30–39 | 13% | 14% | 15% | 18% | 19% |
| 1–50 | Under 30 | 15% | 16% | 17% | 18% | 19% |
| 51–54 | N/A | 16% | 17% | 18% | 19% | 20% |
The steepest jump comes in April 2028, when all plug-in hybrids (1–50g/km) will be pushed up to a flat 18%, with another bump to 19% in 2029/30. This change will significantly reduce the tax advantage these cars currently offer.
Example: Skoda Kodiaq Plug-In Hybrid
Let’s take a look at what these changes look like with a real-world example
The Skoda Kodiaq Plug-in Hybrid is a popular company car choice:
- List Price: £45,490
- CO2 emissions: 11g/km
- Electric-only range: 71 miles
Because of its low CO2 and decent electric range, it currently benefits from a low BiK rate. But that’s about to change.
| Tax Year | BiK Rate | Benefit in Kind (List Price × Rate) | Tax @ 20% (Basic Rate) | Employer NIC @ 15% |
| 2025/26 | 6% | £2,729.40 | £545.88 | £409.41 |
| 2026/27 | 7% | £3,184.30 | £636.86 | £477.64 |
| 2027/28 | 8% | £3,639.20 | £727.84 | £545.88 |
| 2028/29 | 18% | £8,188.20 | £1,637.64 | £1,228.23 |
| 2029/30 | 19% | £8,643.10 | £1,728.62 | £1,296.46 |
For a basic rate taxpayer, the jump in annual tax from £545 in 2025/26 to over £1,700 in 2029/30 is significant. For higher rate taxpayers, that cost doubles, bringing total BiK tax to over £3,400 per year by 2029.
Employers, meanwhile, will also see a sharp rise in Class 1A NICs, which are currently calculated at 15% of the benefit amount. That’s nearly £1,300 in NICs per vehicle by 2029/30.
What the Changes Mean for Businesses
Cost to Employers – NIC and Leasing Strategy
From a business point of view, the upcoming BiK increases are more than just a line item, they impact total employee package costs and company cash flow.
Rising BiK rates mean you’ll be paying more in Employer NICs on every hybrid car you provide. For a fleet of vehicles, that adds up quickly and could make hybrids a less attractive benefit to offer.
A smart workaround? Shorter lease terms. Choosing a 2–3-year lease for a plug-in hybrid now means you can benefit from lower BiK rates without being locked into a higher tax bill after April 2028.
Timing is key! If your lease or car purchase falls just before the steep jump, you could end up shouldering the higher costs for years to come.
Impact on Employees and Their Pay Packets
The changes also affect employees directly, especially those on the higher tax bands.
As BiK rates increase, so does the amount deducted from take-home pay. Someone on the 40% tax band could be paying over £3,400 a year in tax by 2029 just to drive a hybrid. That’s a far cry from the £545 they’d pay today as a basic rate taxpayer.
If you’re offering a plug-in hybrid as a company perk, it may no longer feel like a perk once the tax bills start climbing.
With car benefits often seen as part of the total reward package, it’s worth thinking ahead and reviewing what’s genuinely valuable post-2028.
Are Electric Cars the Better Tax Option?
Comparing Hybrids and Full EVs
While hybrids have been a smart tax-saving choice for the past few years, electric vehicles (EVs) are now pulling ahead, especially when you look at what’s coming after April 2028.
The Benefit in Kind (BiK) rate for electric company cars is increasing too, but it’s happening more gradually. For example, fully electric cars go from 3% in 2025/26 to 9% by 2029/30, still well below the 19% that most plug-in hybrids will be facing by then.
And there’s more good news if you buy an electric car outright. EVs are currently eligible for 100% First-Year Allowances, meaning you can deduct the entire cost of a new electric car from your company’s taxable profits in the year you buy it.
In short, EVs offer a better deal both now and later, combining lower tax on company car benefits with a generous deduction on business costs. And that’s before you factor in the sustainability and environmental credentials many businesses are keen to prioritise.
Business Tax Relief on Electric Vehicles
If your company buys a brand-new electric car outright (rather than leasing it), you can claim capital allowances to reduce your Corporation Tax bill.
Thanks to 100% First-Year Allowance, the full purchase price of a qualifying electric vehicle can be deducted from your profits in the year of acquisition.
For example, if you buy an EV for £40,000, and you can reduce your taxable profits by the same amount, you can get a potential tax saving of up to £10,000 depending on your Corporation Tax rate.
This makes buying an EV an attractive option for businesses with healthy profits and long-term use in mind. Leasing, on the other hand, doesn’t offer the same up-front tax relief, but may still suit companies that want flexibility or lower monthly outgoings.
Planning Ahead for Company Car Tax Changes
Should You Lease or Buy Your Next Company Car?
Whether you should lease or buy a company car will depend on your business’s cash flow, usage plans, and tax position.
Leasing offers lower initial costs and built-in flexibility. It also allows you to avoid the sharp rise in hybrid BiK rates post-2028 by choosing a short lease term now. But you won’t be able to claim capital allowances on leased vehicles. Exiting a lease agreement early can be expensive, so be mindful you would have a longer commitment.
Buying, meanwhile, offers up-front tax relief on qualifying electric cars, making it a smart long-term move if you’ve got the cash available and want to keep the vehicle for several years. Be mindful of potentially higher depreciation on electric cars, that could increase the overall cost.
In the current climate, many businesses are choosing to lease hybrids for the next 2–3 years and then revisit electric options once the 2028 changes take effect.
How to Choose the Right Company Car in 2025
Choosing the right vehicle isn’t just about the make or model, it’s about balancing tax efficiency, practical needs, and long-term business goals.
Think about who will be driving the car, how far they need to travel, and whether they’ll have access to charging points. For some, a plug-in hybrid still makes sense in the short term. For others, especially those in higher tax brackets, an electric car could deliver better savings over time.
At Ryans, we help clients compare real numbers, not just guesses. We’ll look at the cost of the car, the BiK rate, your employee’s tax position, and any reliefs you’re eligible for, so you can make an informed decision with all the facts. Get in touch with our team today for expert corporate tax planning.
Plug-In Hybrid & Electric Company Car Tax FAQs
What is the BiK rate for plug-in hybrids in 2025/26?
The BiK rate depends on CO2 emissions and electric-only range. For example, a hybrid emitting under 50g/km with 70–129 miles of electric range will have a 6% BiK rate in 2025/26.
How is electric range factored into BiK tax?
The longer the electric-only range, the lower the BiK rate (until April 2028). After that, all hybrids with 1–50g/km emissions are taxed at the same flat rate.
What happens to hybrid BiK rates from April 2028?
They jump significantly. From April 2028, all low-emission hybrid cars are taxed at 18%, with a further increase to 19% the following year regardless of electric range.
Are electric company cars still tax efficient?
Yes. Even though BiK rates are rising for electric company cars, they remain lower than hybrids. They’re also currently eligible for 100% First-Year Allowances if purchased outright brand new.
Can I claim capital allowances on a hybrid or EV?
You can only claim 100% First-Year Allowances on new fully electric company cars that are bought (not leased). Hybrids and higher-emission vehicles are subject to lower writing-down allowances.
What’s better for tax – buying or leasing a hybrid car?
Buying gives better relief on electric vehicles via capital allowances. But for hybrids, leasing may make more sense, especially if you want to avoid the post-2028 BiK hike with a short-term lease.
How Ryans Can Help with Company Car Tax Planning
Choosing the right company car shouldn’t be a guessing game. At Ryans, we’ll help you break it down, from Benefit in Kind calculations to lease structuring and long-term capital allowance strategy.
Whether you’re reviewing your car policy, comparing vehicle options, or just trying to make sense of the 2028 changes, we’re here to help you make the smartest move for your business and your people.
Get in touch with our expert team today for a tailored tax comparison or personalised advice.