Benefits in Kind and Electric Vehicles: a guide for employers and employees

Posted: January 15 2026

As electric and hybrid vehicles (EVs and PHEVs) become an increasingly common choice for company car fleets, understanding how benefits in kind (BiK) apply — and how the rules are changing — is essential for both employers and employees planning tax and remuneration strategies. This article explains the current position on benefits in kind for electric and hybrid vehicles and summarises the key changes taking effect in the coming years.

What Is a Benefit in Kind (BiK)?

A benefit in kind arises when an employer provides a non-cash benefit to an employee — such as the private use of a company car — which is treated as part of the employee’s taxable remuneration. The taxable amount is generally calculated by applying an HMRC-prescribed appropriate percentage to the vehicle’s list price (including VAT and options), giving a cash equivalent which is then taxed at the employee’s marginal rate. Employers also face a Class 1A National Insurance contribution on the same taxable value.

For conventional petrol and diesel company cars, the BiK rates can be high, often 25%–37% or more of the vehicle’s list price, reflecting CO₂ emissions and fuel type.

How electric vehicles are taxed as benefits in kind

Current Position

Electric vehicles (EVs) are heavily favoured under the BiK regime:

• For the 2025/26 tax year, the BiK rate for fully electric cars is 3% of the list price — significantly lower than for petrol or diesel cars.
• This preferential treatment is designed to support the transition to zero-emission vehicles and reflects the government’s ongoing incentives for electrification.

For employers and employees alike, the advantage is clear: even relatively expensive EVs attract a modest taxable benefit compared with traditional company cars.

Future Increases in BiK Rates

While EVs remain favourable, the ultra-low BiK burden is phasing up gradually:

• 2025/26: 3%
• 2026/27: 4%
• 2027/28: 5%
• Post-2027 (to 2029/30): further step-ups anticipated to 7% and then 9% by 2029/30.

The staged increase reflects policy intentions to align taxation more closely with broader reform of vehicle taxation and road funding — while still keeping EVs more attractive than internal combustion engine alternatives.

Plug-in Hybrids: a more nuanced picture

Plug-in hybrid electric vehicles (PHEVs) present a more complex tax profile:

• BiK rates for PHEVs depend on CO₂ emissions and electric-only range, with lower emissions and longer electric ranges attracting lower rates.
• Average PHEV BiK rates for 2025/26 fall in bands roughly from 5% to 14% — still below many petrol vehicles, but higher than pure EVs.

However, changes in European and UN emissions testing standards mean that some PHEV models now record higher CO₂ figures, which would ordinarily increase BiK charges. To mitigate this, the 2025 Budget introduced a temporary BiK tax “easement” for affected PHEVs, effective 1 January 2025 to 5 April 2028, with transitional arrangements running until 5 April 2031. Under this easement, qualifying PHEVs can use a nominal CO₂ figure for BiK purposes rather than inflated test figures — reducing unexpected tax burdens.

Practical Implications for employers and employees

Employer perspective

• Reporting and NIC: Employers must report company car benefits via P11D or by payroll reporting and pay Class 1A NIC on the taxable value.
• Fleet decisions: EVs generally minimise BiK liabilities for employees — which can be attractive in recruitment and retention terms — and reduce employer NIC relative to higher-emission vehicles.
• PHEV policies: Understanding which PHEV models benefit from the BiK easement can influence fleet procurement and contract structuring.

Employee perspective

• Tax cost: A lower BiK rate directly reduces the income tax paid on the company car benefit, especially for EVs. Even at 5%–9% in future years, EVs remain tax-efficient compared to many petrol/diesel alternatives.
• Salary sacrifice: Electing for a salary sacrifice arrangement for an EV can compound savings by reducing both taxable benefit and gross salary — though employees must consider the impact on pensions and other earnings-linked benefits.

Looking Ahead: Broader Policy Shifts

Beyond BiK rates themselves, the wider vehicle tax landscape is evolving:

• From April 2028, the government plans to introduce a new mileage-based tax on electric vehicles, charging around 3p per mile for fully electric cars and 1.5p per mile for plug-in hybrids to better complement traditional fuel duty. (The interesting point being how this can be measured).
• Other reforms affecting EV ownership and taxation — such as changes in vehicle excise duty and EV grant schemes — are also taking shape and may influence company car decisions.

How RJP LLP Can Help

Benefit in kind rules for company cars — especially with evolving EV and PHEV rates — are technically detailed and have significant financial implications. RJP LLP can assist with:

• Analysing BiK implications for your employee remuneration packages;
• Modelling tax outcomes for EVs versus alternatives;
• Advising on compliance and reporting obligations under HMRC rules.

Whether you are reviewing your fleet policy or advising employees on company car choices, expert insight can help you navigate the changing landscape.

Contact: partners@rjp.co.uk