Are electric vehicles still the way to go for business owners?

For many years it has been known that electric vehicles (EV’s) provide tax benefits beyond what conventional petrol and diesel models offer. While upcoming changes will gradually reduce some of these benefits, EV’s continue to provide the most tax-efficient option for company car drivers.

Current tax advantages of fully electric vehicles

As of the 25/26 tax year, a brand new all electric vehicle purchased outright or financed through HP can attract a 100% deduction in the first year for Corporation Tax and the driver will only suffer a 3% benefit in kind on the list price. This is the best tax outcome for any business owner or employee wanting to drive a company car.

Hybrid comparison

It has also been widely accepted that plug in hybrid vehicles also have tax benefits. However, business owners should be careful when shopping around for a new vehicle to make sure that the hybrid option is a plug in hybrid rather than a petrol hybrid and that the CO2 emissions are below 50g/km if they are looking for a tax efficient option.

For example a Range Rover Evoque petrol hybrid has CO2 emissions from 178g/km which would lead to a benefit in kind rate of 37%, whereas the petrol plug in hybrid is 30g/km and an all electric range of 39 miles, a benefit in kind rate of only 13%.

At a list price of around £49,000 over a four year lease, a higher rate tax payer will save £18,816 of tax by choosing the plug in vehicle. Not to mention the extra National Insurance borne by the company.

Future changes to benefit in kind rates

Before any decision is made about what vehicle to purchase, consideration should also be given to how these percentages will change year by year, as the government has announced that all rates will be increasing from now until 2029/30.

Over the next few years, even plug in hybrids will become less tax efficient as currently with an electric range of over 130 miles a 3% rate will be charged but this will increase to 19% by 2029/30. Again, for a car with a list price of £50,000 on a four year lease for a 40% tax payer, this is an increase of £12,800 in tax over the lease from the lower to the higher rate.

In the same year, a fully electric car will attract a benefit in kind rate of 9%, which reflects the gradual increase from the current 3% in the span of the next 4 years but is considerably less than its hybrid equivalent.

Company Car Tax Comparison: Now vs the Coming Years

Benefit-in-Kind (BIK) Rates Over Time

Vehicle Type	CO₂ / Electric Range	2025/26 BIK Rate	2029/30 BIK Rate	Direction of Travel
Fully Electric (EV)	0g/km	3%	9%	⬆ Gradual increase, still lowest
Plug-in Hybrid (PHEV) High electric only range	0–50g/km, 130+ mile range	3%	19%	⬆ Significant increase
Plug-in Hybrid (PHEV) Lower electric only range	~30g/km, ~40 mile range	13%	19%	⬆ Increasing
Petrol Hybrid (Non plug-in)	~178g/km	37%	39%	⬆ Already at top rate
Petrol / Diesel	High emissions	37%	39%	⬆ Highest tax cost

Faced with the rate increases, below are the key takeaways for employers:

Fully electric vehicles remain the most tax-efficient company cars, even as BIK rates rise.
Plug-in hybrids lose much of their advantage over time, especially those currently benefiting from very low BIK due to long electric ranges.
Petrol hybrids are often mistakenly assumed to be “green”, but can sit at the maximum 37% BIK rate.
Forward planning is essential — decisions made today affect tax costs for the full lease term.
Employers should review company car policies and educate employees on the long-term tax impact of their vehicle choice.

If you would like to speak to us further about BIK and electric cars, please contact Megan Yorke at megan.yorke@kirknewsholme.co.uk or DD 0113 531 7325