BIK tax hikes for hybrid company cars and double-cab pick-ups
Chancellor takes aim at PHEVs, pick-ups and tax loopholes
The Autumn Budget has extended tax incentives for electric company cars until at least April 2030 but put significant rises on the horizon for plug-in hybrids and double-cab pick-up trucks.
Company car tax has incentivised low-CO2 vehicles since 2002. The benefit of having a car for personal use has what’s called a taxable value – a percentage of the car’s list price, weighted according to its CO2 emissions and, for most plug-in hybrids, electric-only range.
In turn, drivers' benefit-in-kind (BIK), which is paid at the same rate as their income tax band (typically 20% or 40%), and employers’ Class 1A National Insurance Contributions (a flat 13.8%, rising to 15.0% next April) are both calculated as a share of the taxable value.
Since 2020, electric cars have been taxed at ultra-low rates, currently 2%, providing a 90% tax saving compared with a petrol or diesel vehicle. That EV-specific rate will reach 5% by April 2028, and the Autumn Statement confirmed 2%-point increases for the next two financial years, to 7% in 2028/29 and 9% in 2029/30.
It’s a proportionally steep increase, as all other rates will rise by 1% point each year, but still incentivises electric cars and widens the gap to plug-in hybrids (PHEVs).
PHEVs will face some of the biggest tax rises. From April 2028, the current system for vehicles emitting 1-50g/km CO2 – five tax bands, incentivising longer electric-only ranges – will be replaced by a single 18% rate, rising to 19% in 2029/30. For PHEVs capable of travelling at least 130 miles on battery power, company car tax rates will more than triple overnight, from 5% to 18% (although no vehicles meet those criteria yet).
The Volkswagen Golf eHybrid, a PHEV with one of the longest electric-only ranges on the market, at 88 miles, will move from an 8% tax band to the new 18% tax band in April 2028. For a 20% income taxpayer, monthly BIK tax will rise from £49 to £111 at that point.
The Autumn Budget also closes two long-running company car tax loopholes.
Firstly, from 6 April 2025, new double-cab pick-up trucks will be classed as passenger cars for company car tax purposes, with BIK and NICs based on CO2 emissions.
Today, they're taxed as light commercial vehicles (LCVs), based on a flat taxable value of £3960, which has made them very affordable company cars compared with an equivalent SUV.
For the UK’s most popular pick-up, the Ford Ranger XLT, the monthly BIK bill for a 20% taxpayer will quadruple next year, from £66 to £244, as a result of those changes. However, vehicles registered until 5 April 2024 will continue to be taxed under the current rules.
Secondly, the Chancellor announced future legislation ending car ownership schemes from April 2026. These enable drivers to purchase a car through an employer-provided loan, then sell it back to them at the end of the term and avoid paying BIK tax.