Plug-in hybrid company cars to face major tax hike from 2028

For years, plug-in hybrid cars have offered company car drivers the best of both worlds: lower emissions than traditional petrol or diesel models and less “range anxiety” than fully electric vehicles.

Add to that the generous Benefit in Kind (BIK) tax rates for hybrids with strong electric-only ranges, and it is easy to see why they have been a popular choice for businesses and employees alike.

But this tax advantage is set to shrink dramatically.

New BIK rules coming into force from April 2028 will mean significantly higher tax bills for drivers of plug-in hybrids and many could be caught out sooner than they think.

The new rules at a glance

At present (2025/26 tax year), plug-in hybrids emitting under 50g/km of CO2 enjoy a BIK rate of between three and 13%, depending on the electric-only range.

From April 2028, this sliding scale will be scrapped.

Instead, all plug-in hybrid cars will face a flat rate of at least 18%, rising to 19% from 2029/30.

That means the more tax-efficient models, which currently attract a rate as low as 3% or 6%, will see the sharpest increases.

What this means in real terms

Take the Skoda Kodiaq plug-in hybrid as an example.

With CO2 emissions of 11g/km, a list price of £45,490, and an electric-only range of 71 miles, the car currently falls into the 6% BIK band.

• Today: At 6%, a 40% taxpayer would pay around £1,092 per year.
• From April 2028: At 18%, that same driver will face a tax bill of £3,275 – almost triple the cost.

This change will hit anyone leasing a plug-in hybrid on a three or four-year agreement now, as the new rules will likely apply before the end of the lease period.

Fully electric cars remain attractive

While plug-in hybrids will lose their tax advantage, fully electric vehicles (EVs) will remain much more attractive under the new rules.

From April 2028, EVs will continue to enjoy a much lower BIK rate of 7% – even as the charging network expands and battery ranges improve.

For employers and company car drivers looking to reduce both emissions and costs, fully electric cars will increasingly become the tax-efficient option.

Next steps for businesses and drivers

With these changes on the horizon, now is the time for employers and employees to review their company car policies. Steps to consider include:

• Informing employees early: Make sure drivers understand the financial impact if they lease a plug-in hybrid before the new rules take effect.
• Comparing costs with electric vehicles: With a lower BIK rate and improving infrastructure, EVs may offer better value in the long run.
• Planning ahead for tax efficiency: Reviewing options with a tax adviser now could save thousands in future tax bills.

Many employers and drivers still see plug-in hybrids as a safe, tax-efficient option, but the reality is that this is about to change.

The move to a flat 18% rate represents a major policy shift and it signals the Government’s intention to accelerate the transition towards fully electric vehicles rather than hybrids.

Businesses that fail to plan ahead could see costs rise sharply, especially if they have fleets locked into lease agreements when the new rates take effect.

Our advice is to start reviewing your vehicle policies now.

Model the potential costs, look carefully at the total tax exposure for different types of vehicles, and consider whether transitioning to fully electric cars could offer longer-term savings.

With EV charging infrastructure growing and battery ranges improving, the tax advantages may be too significant to ignore.

For help with BIKs and company cars, please get in touch with our team.

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