What’s Happening to Benefit-in-Kind on Electric and Plug-in Hybrid Cars - and What Does It Mean for Your Company Car Drivers or Salary Sacrifice Scheme?

If your business is choosing company cars or considering an EV salary sacrifice scheme, Benefit-in-Kind (BiK) tax is probably part of the calculation

If your business is choosing company cars or considering an EV salary sacrifice scheme, Benefit-in-Kind (BiK) tax is probably part of the calculation.

The good news is that electric cars continue to receive a substantial tax advantage. But BiK rates are increasing — and the treatment of plug-in hybrids changes significantly from April 2028.

For businesses taking out three or four-year vehicle contracts today, 2028 isn't actually very far away. So should it change what you choose now?

Electric car BiK is rising — but gradually

For a fully electric company car, the BiK percentage is currently 4% for the 2026/27 tax year. It increases to:

5% in 2027/28
7% in 2028/29
9% in 2029/30

The important point is that electric cars don't suddenly lose their favourable tax treatment. Even at 9%, the BiK percentage remains substantially below the rates applying to many petrol and diesel company cars.

The Government has deliberately published future rates to give employers and drivers greater certainty when making longer-term vehicle decisions.

However, the increase does need to be included when calculating the real cost of a vehicle over its full contract period.

What does that mean for the company car driver?

Company car tax is broadly calculated using the car's P11D value and its applicable BiK percentage, with the resulting taxable benefit then taxed at the driver's marginal income tax rate.

Take an electric car with a £40,000 P11D value.

At 4% BiK, its taxable benefit is £1,600 a year. At 7%, that becomes £2,800 and at 9% it becomes £3,600.

For a 20% taxpayer, that illustrates why the future rates matter — but also why an EV can continue to be attractive as a company car.

When comparing vehicles, therefore, don't just look at this year's tax. Look at the tax across the anticipated period you will have the car.

There's an employer cost as well

BiK isn't only an employee consideration.

Employers generally pay Class 1A National Insurance on taxable company car benefits. For 2026/27 the Class 1A rate is 15%. As the taxable benefit on an EV increases, therefore, the employer's Class 1A NIC liability increases too.

For businesses operating several company cars, this makes whole-life modelling increasingly important.

It doesn't necessarily make an EV unattractive — it simply means that the cost in year three or four shouldn't be assumed to be identical to year one.

What about plug-in hybrids?

This is where businesses need to pay particular attention.

Until 2027/28, qualifying PHEVs producing 1–50g/km can have BiK percentages determined partly by their electric-only range.

From 2028/29, the structure changes significantly. Cars producing 1–50g/km are scheduled to move to an 18% BiK rate, rising to 19% in 2029/30. The Government has explicitly said the intention is to align hybrid taxation more closely with internal-combustion cars while maintaining a stronger incentive for zero-emission vehicles.

There is an important complication, however.

Transitional rules can protect certain qualifying PHEVs already provided to an employee by 5 April 2028. Depending on the vehicle and arrangement, that treatment can continue until the arrangement is varied or renewed, or until 5 April 2031, whichever comes first.

So if you're considering a PHEV on a contract that crosses April 2028, it's worth checking the specific vehicle, registration/emissions position and contractual arrangement, rather than assuming one generic tax treatment applies to every PHEV.

Does rising BiK make EV salary sacrifice less attractive?

Not necessarily.

Salary sacrifice has become popular partly because low-emission cars with CO2 emissions of 75g/km or less retain favourable treatment under the Optional Remuneration Arrangement rules.

As electric-car BiK rises, employees will pay more tax on the benefit than they do today. But that doesn't mean the salary sacrifice calculation suddenly stops working.

The sensible question is:

What will this particular car cost the employee overall, including the salary sacrificed and BiK, compared with acquiring and running an equivalent car privately?

That calculation can still produce a compelling result.

Should a business wait before introducing salary sacrifice?

Increasing BiK rates alone aren't an obvious reason to delay.

If a salary sacrifice scheme makes sense for the business today — perhaps to improve employee benefits, aid recruitment and retention or help employees access electric cars — waiting doesn't make the future BiK increases disappear.

Instead, businesses should build known future tax rates into employee illustrations and scheme planning from the outset.

That means employees understand that their tax cost can change during the lease rather than discovering it later.

The vehicle choice matters more than ever

The days when businesses could simply ask, "What's the monthly rental?" are disappearing.

For a company car or salary sacrifice vehicle you may now need to consider the lease cost, P11D value, BiK throughout the contract, employer NIC, electric range, charging requirements and — particularly with a PHEV — how future tax rules could affect the vehicle.

And because many cars ordered today could still be on contract after April 2028, those aren't distant considerations.