PHEV drivers facing a tax hike of 200%
Written by
Decarbonisation Business Development Manager
Thursday 5th June 2025
For well over 20 years, the government has used Benefit in Kind (BiK) taxation as a means to reduce transport-related emissions and encourage manufacturers, fleet operators, and drivers toward cleaner technologies.
For the most part, rates have risen by just one or two percentage points annually. But with the government looking to widen the gap between pure EVs and plug-in hybrids, the 2028/29 tax year will see even the best-performing hybrids hit with a 200% increase in the rate.
The changes mean that all PHEVs, regardless of their electric range, will be taxed at 18%, rising by a further percentage point to 19% in 2029/30. To see what this means in practice, let’s look at a worked example:
Vehicle: VW Passat Life 1.5 TSI eHybrid 204PS 6-speed DSG
Electric range: 81 miles
P11D Value: £44,280
|
|
|
|
Annual Tax Liability |
|
|
|
BiK Rate |
Taxable Value |
20% Tax Payer |
40% Tax Payer |
|
2025/26 |
6% |
£2,656.80 |
£531.36 |
£1,062.72 |
|
2026/27 |
7% |
£3,099.60 |
£619.92 |
£1,239.84 |
|
2027/28 |
8% |
£3,542.40 |
£708.48 |
£1,416.96 |
|
2028/29 |
18% |
£7,970.40 |
£1,594.08 |
£3,188.16 |
|
2029/30 |
19% |
£8,413.20 |
£1,682.64 |
£3,365.28 |
It’s important to bear in mind that BiK is calculated based on the number of months the benefit is received. So, a car ordered today but delivered in six months’ time will be subject to a higher rate for longer. To put this into context, here are the rates for the next five years.
|
CO2 (g/km) |
Electric range |
2024/25 (%) |
2025/26 (%) |
2026/27 (%) |
2027/28 (%) |
2028/29 (%) |
2029/30 (%) |
|
|
Pure EV |
0 |
N/A |
2 |
3 |
4 |
5 |
7 |
9 |
|
Hybrid |
01-50 |
>130 |
2 |
3 |
4 |
5 |
18 |
19 |
|
Hybrid |
01-50 |
70-129 |
5 |
6 |
7 |
8 |
18 |
19 |
|
Hybrid |
01-50 |
40-69 |
8 |
9 |
10 |
11 |
18 |
19 |
|
Hybrid |
01-50 |
30-39 |
12 |
13 |
14 |
15 |
18 |
19 |
|
Hybrid |
01-50 |
<30 |
14 |
15 |
16 |
17 |
18 |
19 |
|
ICE |
51-54 |
|
15 |
16 |
17 |
18 |
19 |
20 |
Is this the end of PHEV company cars?
There’s no doubt that PHEVs are an interim solution on the road to net zero, but that doesn’t mean they’re without merit. Drivers who regularly cover longer distances without easy access to rapid charging facilities may find that a PHEV is still an effective way to lower emissions, even if the tax advantages are no longer as generous as they once were.
The same is true for drivers who typically make lots of shorter journeys and can therefore make good use of the electric-only mode. In which case, the savings on fuel may help offset the higher rate of tax.
For example, the average CO2 emissions for company cars is around 71g/km. As things stand, this equates to a BiK rate of 20% in the current tax year. That’s 14 percentage points more than the best performing plugin hybrids. Jump forward to 2028/29, when the rates will be 22% and 18% respectively, and the gap narrows to just 4 percentage points.
To put this into perspective, if both cars had a P11D value of £45,000, the annual difference would be £360 for a 20% taxpayer and £720 for someone in the 40% bracket. On a monthly basis, that’s £30 and £60 respectively. It’s not ideal, but not as bad as it might at first appear.
What about BiK on pure EVs?
PHEVs are not the only vehicles facing a significant tax rise. In 2025/26, electric vehicles attract a BiK rate of just 3%. By 2028/29, that will rise to 7% and increase again to 9% the following year.
Overall, Benefit in Kind tax is going up for everyone, it’s just that PHEV drivers are facing a steeper increase than most. That said, some drivers may still find that the whole life cost of a PHEV is still an attractive option, especially if they drive a reasonable proportion of miles in full electric mode.
EV, PHEV, or ICE?
The government’s decision to allow PHEVs to be sold until 2035 means plug-in hybrids will be around for a while yet, but the window for meaningful tax savings is already starting to close. To find out how we can help you make an informed decision based on a realistic assessment of the financial, environmental, and practical impact of each option, just get in touch.