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Electric and hybrid company cars were once one of the most tax-efficient benefits an employer could provide. Low benefit-in-kind rates made them genuinely attractive for both employees and businesses. That advantage is shrinking fast. Between 2026 and 2030, the tax cost of driving an electric or hybrid company car rises significantly — and for some vehicles the increase is not gradual. It arrives as a cliff-edge in a single tax year. Our tax advisors at Tax Accountant work with employers and employees on company car tax planning. Understanding what is coming — and making decisions now rather than later — is the difference between managing this cost and being caught off guard by it.
How Company Car Tax Works for Electric and Hybrid Vehicles
Every company car triggers a benefit-in-kind charge where the car is available for private use. The charge applies whether or not the employee actually uses the car privately. Availability alone is enough. The taxable amount is the car’s list price multiplied by the appropriate percentage. That percentage is driven by the car’s CO2 emissions. Lower emissions mean a lower percentage and a lower tax bill.
Zero-emission electric cars currently sit at the bottom of the scale. Their appropriate percentage for 2025/26 is just 3%. Plug-in hybrids and low-emission vehicles in the 1 to 50g/km band attract a percentage based on their electric range — the further they can travel on electric power alone, the lower the charge. Cars with more than 130 miles of electric range sit at 3% in 2025/26. Cars with less than 30 miles of electric range sit at 15%. HMRC’s guidance on company car tax rates sets out the full table of percentages by emissions band and electric range.
Employers pay Class 1A National Insurance Contributions on the benefit amount at 15%. So every rise in the appropriate percentage increases both the employee’s income tax bill and the employer’s NICs bill simultaneously.
What Is Changing in 2026/27 and 2027/28
The appropriate percentage for all vehicles — including zero-emission cars — rises by one percentage point in both 2026/27 and 2027/28. The maximum charge is capped at 37%.
For zero-emission electric cars, this means the appropriate percentage moves from 3% in 2025/26 to 4% in 2026/27 and 5% in 2027/28. On a £40,000 electric car, the taxable benefit rises from £1,200 to £1,600 to £2,000 across those three years. For a higher rate taxpayer, the annual tax bill on that car grows from £480 to £640 to £800. These are still relatively modest numbers. But the trajectory matters — and it accelerates sharply from 2028/29 onwards.
For cars in the 1 to 50g/km band, the appropriate percentage continues to depend on electric range throughout 2026/27 and 2027/28. No structural change applies to this band yet. That changes dramatically from 2028/29.
The 2028/29 Cliff-Edge for Low-Emission Vehicles
This is the change that most company car drivers are not prepared for. From 2028/29, electric range ceases to be relevant for cars in the 1 to 50g/km CO2 band. Every car in this band — regardless of how far it can travel on electric power — moves to a flat appropriate percentage of 18%.
For a car with more than 130 miles of electric range, the appropriate percentage goes from 5% in 2027/28 to 18% in 2028/29. On a £40,000 car, the taxable amount jumps from £2,000 to £7,200 in a single year. For a higher rate taxpayer, that is a tax increase of £2,080 in one year on the same car. For the employer, the Class 1A NICs bill on that car rises by £780 in a single year.
Many employees chose cars in this band specifically because of their low benefit-in-kind charge. The 2028/29 change wipes out most of that advantage in one step. For all other emission bands, the appropriate percentage continues to rise by one percentage point in both 2028/29 and 2029/30. The maximum charge also increases — to 38% for 2028/29 and 39% for 2029/30, applying to cars with CO2 emissions of 155g/km and above.
Our tax advisors review fleet and individual car positions as part of our employment tax and employment tax PAYE services. For clients with cars in the 1 to 50g/km band, we recommend reviewing the position now — not in 2027.
What About Plug-In Hybrid Vehicles?
New EU and UN emissions standards took effect from 1 January 2025. Under these standards, CO2 emissions figures for plug-in hybrid vehicles came out higher than under previous standards. Left unaddressed, this would have pushed many PHEV drivers into a higher appropriate percentage bracket immediately.
The government responded with a temporary easement. It applies to PHEVs registered on or after 1 January 2025 and on or before 5 April 2028. Where the vehicle has CO2 emissions of 51g/km or above and was registered under a standard other than Euro 6d-ISC-FCM or Euro 6e, it is treated as having a notional CO2 figure of 1g/km — provided it has at least one mile of electric range. This keeps the car in the 1 to 50g/km band for tax purposes. The appropriate percentage is then determined by the car’s electric range rather than its actual CO2 figure.
Where an employer makes the car available to an employee before 5 April 2028, the easement continues until the arrangement is varied or renewed — or at the latest until 5 April 2031. Whether a specific vehicle qualifies for this easement requires checking carefully. Our team confirms the position for clients and ensures they do not pay more benefit-in-kind tax than the rules require.
Free Electricity for Private Use
Where an employer provides electricity for an employee’s private journeys in a company car, no fuel benefit charge applies. This is one of the remaining genuine tax advantages for electric company car drivers. The standard fuel benefit charge — which applies to petrol and diesel cars where the employer pays for private fuel — does not extend to electricity. On a £40,000 car with an appropriate percentage of 4% in 2026/27, avoiding the fuel benefit charge saves the employee from a taxable fuel benefit based on the £29,200 car fuel multiplier for that year. The multiplier rises to £29,200 in 2026/27, up from £28,200 in 2025/26.
Electric Vehicle Excise Duty From April 2028
From 6 April 2028, the government introduces a new mileage-based charge on electric and hybrid vehicles called electric vehicle excise duty, or eVED. The charge is set at 3 pence per mile for electric cars and 1.5 pence per mile for hybrid cars. The government is still consulting on the full details of how this will work in practice. But it represents an additional cost that any long-term fleet or personal car planning needs to factor in alongside the benefit-in-kind changes described above. The ICAEW has published useful commentary on the direction of travel for electric vehicle taxation for those who want a broader professional view of where policy is heading.
Employee Car Ownership Schemes
Planned changes that would have brought employee car ownership scheme vehicles within the company car tax rules from 6 October 2026 have been delayed. Those changes now take effect from 6 April 2030. They apply to cars where ownership transfers to the employee on restricted terms. If your business operates an ECOS arrangement, this delay buys time — but the change is still coming and planning around it is worth starting now.
How Our Tax Advisors Can Help
The tax treatment of electric and hybrid company cars is becoming more complex, more expensive and less predictable than it was just a few years ago. The 2028/29 cliff-edge alone represents a material cost increase for a large number of company car drivers. The time to plan around it is before it arrives — not after it appears on a payslip or P11D.
Our team works with both employees and employers on company car tax planning. For employees, we model the actual tax cost of their current and proposed vehicles, taking into account their tax band, the car’s list price, the upcoming changes and whether salary sacrifice or other arrangements make financial sense. For employers, we review fleet policies alongside Class 1A NICs obligations and build replacement cycles around the tax calendar rather than just the vehicle lifecycle. We handle this through our tax planning and advisory service and our employment tax PAYE work.
The practical advice our team gives consistently is this: the decisions you make about your company car in the next twelve months will determine how much the 2028 changes cost you. Make those decisions with the full picture in front of you. Get in touch and we will work through it with you.