When Mr Whitfield moved his twelve-strong sales team into electric cars a few years ago, it felt like the easiest decision he had ever made as managing director. The tax bill on each car was almost nothing, his team loved driving them, and the business looked good for it.
Recently, over a coffee, he asked us a simple question: “Is this still the right call?” Our honest answer was yes. The electric company car is still the most tax-efficient car you can give an employee. What James had not spotted was that the advantage narrows a little more every April, and that the paperwork around it is about to change shape entirely.
We said it when we first wrote about this: electric cars won’t stay tax-efficient forever. From April 2025, the benefit in kind (BIK) rate on EVs started rising, affecting both cost planning and payroll reporting. The reporting change has since been pushed back a year. From April 2027, company car benefits must be reported through payroll in real time, with most other benefits following in April 2028. If your company offers electric vehicles, this is a critical window to prepare.
The tax-friendly years are tapering, not ending.
Electric vehicles have enjoyed tax-friendly treatment for years, but that’s shifting fast. The electric car benefit in kind rate climbs from 2% to 9% over five years. The road tax exemption ended in April 2025. From April 2027, company cars move into payroll, and P11Ds become a thing of the past for most benefits once the second phase lands in April 2028.
Here is the published path for company cars, as it stands today.
| Tax year | Pure electric | Plug-in hybrid (1 to 50g/km CO2) |
|---|---|---|
| 2024/25 | 2% | Depends on electric range |
| 2025/26 | 3% | Depends on electric range |
| 2026/27 | 4% | Depends on electric range |
| 2027/28 | 5% | Depends on electric range |
| 2028/29 | 7% | 18% |
| 2029/30 | 9% | 19% |
A percentage on its own means little, so let us put a number on it. Take an electric car with a list price of £40,000. At 4%, the taxable benefit for 2026/27 is £1,600. A higher rate taxpayer pays £640 for the year, and the company pays Class 1A National Insurance of £240 on top. By 2029/30, at 9%, the same car produces a £3,600 benefit, £1,440 of tax for that employee and £540 for the company. Still modest beside a petrol equivalent. Not modest enough to ignore across a fleet.
The plug-in hybrid cliff edge.
This is the change we think deserves far more attention than it gets. Until 2027/28, a plug-in hybrid with a long electric range sits in the same low band as a pure EV. From April 2028, every car emitting between 1 and 50g/km lands at 18%, whatever its battery can do.
A hybrid ordered this winter on a four-year lease will straddle that change. Your employee will feel it in their payslip halfway through the contract, and they will ask you why nobody warned them. If you are still offering hybrids as the comfortable middle option, now is the moment to look again.
Road tax, the expensive car supplement and the coming pay-per-mile charge.
EV road tax applies from April 2025. New electric cars pay a nominal first-year rate, then the standard annual rate. Electric cars registered from 1 April 2025 with a list price above £50,000 also pay the expensive car supplement for five years, starting with the second year. That threshold was £40,000 until it was raised in April 2026, which quietly took a good number of mid-range EVs out of the charge.
The bigger shift arrives in April 2028. The government has announced an Electric Vehicle Excise Duty, a mileage-based charge of 3p a mile for electric cars and 1.5p for plug-in hybrids, collected alongside ordinary road tax. For a company-owned car, the business is usually the keeper, so expect the cost to reach you either directly or through your lease pricing. High-mileage roles feel it most.
Payrolling benefits: what actually changes for employers?
The original plan was to bring almost every benefit into payroll from April 2026. That was delayed to April 2027 and then split into two phases. From 6 April 2027, pay rolling becomes compulsory for company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most remaining benefits follow from April 2028. Loans and living accommodation stay voluntary.
In practice, the taxable value of each car is reported on every Full Payment Submission, and the employee pays the tax in real time rather than through a tax code adjustment. HMRC will remove phase 1 benefits from employees’ tax codes before 6 April 2027, so there is no double counting. Employers do not need to register for the Phase 1 benefits. A voluntary registration window opens in November 2026 for those who want to payroll other benefits from the same date.
Two insider points are worth knowing.
First, Class 1A on pay-rolled benefits will be accounted for in real time. Your company will still settle Class 1A for 2026/27 in July 2027 under the old process, while already paying monthly on 2027/28 cars, so that summer carries a cash flow overlap. Second, if your company pays an employee’s tax on a benefit for them, that payment must be grossed up and run through payroll. It will be far more visible once everything sits on the payslip.
Salary sacrifice and capital allowances are still worth a look.
Salary sacrifice remains the route most employees use to get an EV, because ultra-low emission cars are excluded from the optional remuneration rules that cap the tax saving on most other sacrificed benefits.
On the company side, the 100% first-year allowance for new zero-emission cars and workplace charge points currently runs to 31 March 2027 for companies, and 5 April 2027 for unincorporated businesses. The relief turns on when the expenditure is incurred, not when the car is ordered. With the Autumn Budget on 28 October 2026, we would not bank on a further extension until it is announced.
What’s changing and when.
- BIK rate rose to 3% in 2025, and stands at 4% for 2026/27
- Reaches 5% in 2027/28, 7% in 2028/29 and 9% by 2029/30
- Plug-in hybrids jump to 18% from April 2028
- EV road tax applies from April 2025, with the supplement threshold at £50,000 for EVs
- Pay-per-mile charge for EVs due from April 2028
- Company cars move into payroll from April 2027, with P11Ds phased out for most benefits from April 2028
- Company-paid tax needs grossing-up
- First-year allowance for zero-emission cars ends in March or April 2027 unless extended
How to get ready.
- Forecast total BIK costs, for employees and for Class 1A, across every year of each car’s contract
- Review EV packages for staff, and re-examine any plug-in hybrid on the list
- Upgrade payroll software, and confirm with your provider that it will report car benefits on the Full Payment Submission from April 2027
- Prepare for grossed-up benefits wherever the company meets an employee’s tax
- Train staff on new rules, and tell employees before April 2027 that their tax will move from their tax code to their payslip
- Time any new purchases against the first-year allowance deadline
- Check list prices against the £50,000 supplement threshold before ordering
EVs are still a smart choice, but that advantage is narrowing. If there is one thing we would insist on, it is this: pull together the list price, contract end date and fuel type of every car on your fleet now, before the Budget, because every decision above starts from those three facts.
Act early to avoid nasty surprises and simplify your compliance work. If you would like a second pair of eyes on your fleet, your benefits policy or your payroll readiness, send us a message and we will happily talk it through.
Frequently asked questions.
The appropriate percentage for a pure electric company car is 4% for 2026/27, rising to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
From 6 April 2027 for company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most other benefits follow from April 2028, with loans and living accommodation remaining voluntary.
Not all at once. P11Ds will still be used in 2027/28 for benefits outside phase 1, unless the employer payrolls them voluntarily. Most benefits leave the P11D process from April 2028.
Yes, since 1 April 2025. Electric cars registered from that date with a list price above £50,000 also pay the expensive car supplement for five years.
The government has announced an Electric Vehicle Excise Duty from April 2028, at 3p a mile for electric cars and 1.5p a mile for plug-in hybrids, payable alongside road tax.
For most employees, yes. Ultra-low emission cars sit outside the optional remuneration rules, so the BIK charge is based on the car’s list price rather than the salary given up.