Overview and key points
As the UK progresses from traditional combustion engines toward full electrification, plug‑in hybrids (PHEVs) continue to hold a strong position in the middle ground. For many company car drivers, they currently offer an attractive balance: lower emissions than petrol or diesel, meaningful electric‑only range for everyday travel, and, importantly, a more favourable Benefit‑in‑Kind (BiK) profile compared with conventional engines.
However, the Government remains committed to reducing incentives for hybrids as part of the wider transition to fully electric vehicles. BiK rates for PHEVs are already increasing year‑on‑year, which means timing is becoming a critical factor. For business users looking to use a hybrid as a stepping stone before going fully electric, the current window of opportunity will not remain open indefinitely.
How Can You Make Savings Through Your Business?
Many business owners already understand the financial benefits of leasing a vehicle through their company. Compared with owning a vehicle personally, leasing via the business can provide significant VAT efficiencies and tax advantages. Rather than standard income tax treatment, company cars fall under Benefit‑in‑Kind (BIK) rules.
BIK is determined by a vehicle’s emissions. Fully electric vehicles attract the lowest tax rates – set at 4% for the 2026/27 tax year. For PHEVs, four additional BiK bands apply, based on the vehicle’s “electric‑only” driving range. The longer the electric range, the lower the BiK percentage.
For example, a model such as the Mercedes GLC, offering an impressive 80‑mile electric‑only range, qualifies for a much lower BiK rate than hybrids with shorter ranges. This makes it an appealing option for business users aiming to optimise tax efficiency.
The BiK Shift Coming in 2028
However, from the 2028/29 tax year, all plug‑in hybrids within this emissions category will move to a flat 18% BiK rate – regardless of their electric range. This will increase to 19% in 2029/30.
For drivers who currently enjoy reduced BiK due to higher electric‑only mileage, this represents a significant change. The tax advantage that has made certain hybrids so attractive will narrow substantially, meaning the overall value proposition may shift.
This is why contract length now plays a very important role. Many standard leasing agreements run for three or four years – long enough to take drivers directly into the higher BiK bands. A shorter two‑year contract, however, keeps you within the current, more favourable tax window and provides flexibility to reassess your options when the new rates take effect.
If you’d like to explore the best options while the window remains open, you can find out more and get in touch with our partners at Pike + Bambridge here.