The benefits of plug-in hybrids take a tax hit

In recent years, company car fleet and salary sacrifice drivers have really taken to plug-in hybrid vehicles (PHEVs). They’re low on tax and a good halfway house if you’re not ready to live with a fully electric car yet.

Hybrid vehicles were first on the scene (the classic Toyota Prius). Hybrids have a petrol engine and a small battery. At very low speeds the battery can power the car on electric power but only for a mile or so. The engine charges the battery.

PHEVs have a petrol or diesel engine and a bigger battery which can be ˜plugged in’ and recharged at a home or at a public charging point. The combustion engine is always available to drive the car or recharge the battery, but you can choose if you want to charge the car yourself.

The advantage is that because the battery is bigger, many new PHEVs can run for about 40 miles or more on pure electric power. Some drivers who do a lot of short low speed journeys – for example the office commute – and charge at home find that most of their week the car runs on electricity alone. That’s good for the environment, for fuel bills and for the benefit in kind tax bill.

But there are tax rises ahead for PHEVs

PHEVs post low CO2 emissions and very low fuel consumption figures (which are worked out assuming the car is used in electric-only mode part of the time). For tax, the longer the electric-only range of a PHEV the better. For 2025/26 there are five Benefit-in-Kind (BiK) rates for PHEVs based on electric-only range; highest 15%, lowest 3% (for over 130 miles EV only – no PHEV currently sold in the UK reaches this). The bottom tier is 0% emissions, so pure electric, charged at 3%.

For example, the Toyota C-HR petrol plug-in hybrid has official CO2 emissions of 19g/km and can run up to 40 miles on pure electric power.

For the 2025/2026 tax year, it falls in the fourth tier tax rate of 9% BiK. But a driver choosing this car on a four-year lease will see the BIK shooting up from its current 9% and doubling to 18% in the final year of the lease.

It’s the same for all plug-in hybrids. Over the next three tax years, the BIK attractiveness will start to disappear to the point where the difference between an electric vehicle and the best performing PHEV will be a massive 10 percentage points.

While PHEVs remain attractive propositions in the short term, the Government has made it clear in the way the latest company car tax tables are formulated that fleet drivers and salary sacrifice takers should consider zero emission electric vehicles only to avoid increasingly punitive rates of benefit in kind tax, commented CBVC Managing Director, Mike Manners.

Our advice to drivers considering a PHEV is to look at the BIK tax implications over the period of the lease, and avoid, if possible, running into tax year 2028/29. As ever, please feel free to discuss your vehicle choices with our leasing experts at CBVC.

To help drivers understand the BIK of their car choice, each of our vehicle car listings has a company car calculator at the end of the end of the page, so you can see the BiK payable for a 20% and 40% earner for the next four tax years.

How benefit in kind rises for plug-in hybrids