Plug-in Hybrid and Electric Company Cars – Updated Tax Rules and What They Mean for You

Plug-in hybrid and electric company cars have become an attractive choice for UK businesses looking to reduce their tax bills and carbon footprint. With lower CO2 emissions and increasing access to charging infrastructure, these vehicles have offered both financial and environmental benefits. However, from April 2025, new rules will change the way these vehicles are taxed meaning both employers and employees will face different Benefit in Kind (BiK) implications in the coming years.

In this guide, YRF Accountants explains everything you need to know about the upcoming changes, how they impact your business, and how to plan effectively for the future.

Understanding Benefit in Kind (BiK) for Company Cars

A company car provided by an employer for personal use is considered a Benefit in Kind (BiK) a non-cash benefit that's subject to income tax. The BiK tax rate depends on the vehicle's CO2 emissions, electric range, and official list price.

The lower the emissions and the higher the electric-only range, the smaller the BiK percentage applied to the car's value. This percentage determines the taxable benefit amount. The employee pays income tax on that value, and the employer pays Class 1A National Insurance Contributions (NIC) on the same benefit.

Historically, this structure has made plug-in hybrids a very tax-efficient option but that's about to change.

Why Plug-in Hybrids Have Been a Tax-Efficient Choice

Plug-in hybrids offer a mix of electric range and petrol back-up, making them versatile for company use while keeping emissions under 50g/km. They've benefited from extremely low BiK rates in recent years sometimes as low as 2% to 6% depending on their range.

For employers, this has meant reduced NIC bills, and for employees, significantly smaller deductions from their pay. But from April 2025, the Government will start phasing out these incentives, gradually increasing BiK rates for hybrids until 2028 when most will fall under a single flat rate.

Benefit in Kind Rate Changes 2025–2030

Here's how the BiK rates are set to rise for low-emission vehicles and fully electric cars:

From April 2028, all hybrids producing between 1–50g/km CO2 will be taxed at a flat 18%, removing the current advantage for those with higher electric ranges.

Example: The Skoda Kodiaq Plug-In Hybrid

Let's see how this change plays out in real numbers.

List price: £45,490
CO2 emissions: 11g/km
Electric range: 71 miles

This illustrates how annual BiK costs for employees could triple by 2029/30, while employer NICs nearly triple too.

The Business Impact – Planning Ahead

Rising BiK rates will affect both employers and employees. For businesses, the main hit will be higher NIC costs and reduced cash flow flexibility. For employees, take-home pay will drop as personal BiK tax bills increase.

Shorter lease terms can be a practical solution allowing you to benefit from lower hybrid BiK rates until 2028 without being locked into higher costs later. Businesses should also reassess fleet composition now to avoid unexpected tax jumps.

Are Electric Cars the Better Tax Option?

Fully electric cars (EVs) remain the most tax-efficient option in the long run. Their BiK rates will rise slowly, reaching just 9% by 2029/30, compared with 19% for hybrids.

There's another advantage for companies that buy EVs outright 100% First-Year Allowances. This allows you to deduct the entire cost of a new fully electric car from your taxable profits in the year of purchase. For instance, buying a £40,000 EV could save up to £10,000 in Corporation Tax depending on your rate.

This makes EVs an appealing option for businesses with solid cash flow, especially when aligned with sustainability goals.

Leasing vs Buying: Which Is More Tax-Efficient?

Leasing hybrids for 2–3 years can help avoid future BiK spikes while offering flexibility. However, if your business wants to invest long-term and claim capital allowances, buying an electric car outright could deliver greater overall tax savings.

For companies that value flexibility or plan to switch to fully electric fleets later, leasing remains a sensible short-term choice especially as the hybrid tax landscape continues to shift.

Making the Right Choice

Choosing your next company car is not just a question of style it's a matter of tax efficiency and long-term financial planning. At YRF Accountants, we help businesses evaluate the full cost of company cars, from lease structures to Benefit in Kind projections, ensuring you make the most tax-efficient decision possible.

Whether you're considering hybrids, EVs, or alternative low-emission options, our self-employed advice Bolton team can help you understand the financial impact under upcoming taxation rules and design a strategy that fits your needs.

Plug-In Hybrid & Electric Company Car Tax FAQs

What is the BiK rate for hybrids in 2025/26?
For vehicles emitting under 50g/km CO2 with an electric range between 70–129 miles, the BiK rate is 6% for 2025/26.

When will hybrid BiK rates increase sharply?
From April 2028, all hybrids between 1–50g/km will be taxed at a flat 18%, rising to 19% the following year.

Are electric company cars still tax efficient?
Yes, even with rising rates, EVs remain more efficient. They also qualify for 100% First-Year Allowances if bought new.

Can you claim capital allowances on hybrid cars?
No, hybrids only qualify for standard writing-down allowances, not full 100% deductions like electric cars.

Should I lease or buy my next company car?
If you want flexibility, lease. If you prefer long-term savings and tax relief, consider purchasing an electric car outright.

Expert Tax Planning for Low-Emission Company Cars

At YRF Accountants, we provide tailored guidance on company car taxation, vehicle selection, and HMRC compliance. From Benefit in Kind calculations to capital allowance planning, our experts help you minimise costs and stay compliant.

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