The UK Government has announced significant adjustments to the tax frameworks affecting Plug-in Hybrid Electric Vehicles (PHEVs) and Zero Emission Vehicles (ZEVs). These changes are set to impact both benefit-in-kind (BIK) tax rates and road fund license (RFL) charges, which could have a lasting effect on drivers and fleet operators.

BIK tax rate adjustments

BIK tax rates relate to the taxable value of company cars provided for the private use of employees. This also includes double-cab pickup trucks and some double-cab or crew-cab vans and minibuses if used privately. Historically, PHEVs have had favourable BIK rates thanks to their lower CO2 emissions and extended electrical ranges. However, in April 2025, the Government will start to apply a series of incremental increases in BIK rates for PHEVs, which will eventually see the rate standardised by 2028.

The three Tax Years from April 2025 to April 2028 will see current BIK rates rise by 1% each year for ZEVs and PHEVs. This means that a PHEV with an electric range of 130 miles will increase from 2% to 5%, and a PHEV with an electric range of less than 30 miles will increase from 14% to 17% by April 2028.   

From Tax Year 2028/29, the Government is predicted to eliminate electric range-based tax bands and impose a flat BIK rate of 18% for all PHEVs with CO2 emissions between 1-50g/km, irrespective of the electric range.

In Tax Year 2029/30, a further 1% increase will set the BIK tax rate at 19% for PHEVs, whereas a 2% increase for ZEVs will take the rate to 9%.   

RFL changes

RFL (or road tax) is also subject to large-scale revisions starting in April. These adjustments will affect new and existing ZEVs and PHEVs, potentially leading to increased ownership and leasing costs.

First-Year Rate: PHEVs with CO2 emissions between 1-50g/km will see their first-year RFL charge escalate from £10 to £110. Vehicles emitting 51-75g/km will experience a similar increase from £30 to £130. ZEVs will increase from zero to £10. 

Standard Rate (Second Year Onwards): From the second year of registration, all vehicles – including ZEVs – will be subject to a standard annual rate of £195. This also applies to vehicles registered before April 2025.

Expensive Car Supplement: From April 2025, the rate will increase from £410 to £425 for vehicles with a list price of over £40,000, including any optional extras, for the first five years, beginning in the second year of registration. This will also apply to any ZEVs registered from the 1^st of April 2025.

What does this mean for you?

For drivers, higher BIK rates mean increased personal tax obligations, which could make PHEVs less attractive as a company car option. Reconsidering choices like EVs might become more commonplace. These changes could mean a big jump in BIK costs, particularly for drivers of PHEVs with a higher electric range. For anyone taking a company car now for more than 3 years, it is important they understand how much more tax they will pay from April 2028. 

Similarly, fleet operators and businesses will need to balance employee preferences with tax efficiency and sustainability goals without severely impacting the cost-effectiveness of their vehicle procurement. In general terms, businesses and employees will need to carefully evaluate their vehicle choices to mitigate the impact of rising taxation. A proactive approach supported by whole-life cost analysis will be a key step in doing so effectively.

How SG Fleet can support you.

These changes present an important opportunity for fleet operators to review their vehicle policy and driver choice lists on a whole-life cost basis. Our team will help you evaluate the new car market together with the various vehicle leasing options available, all supported by our data analytics tools to support data-driven decision-making for your business. SG Fleet is a partner that can offer expert guidance on all aspects of the automotive landscape and actively supports fleet customers with the transition to electric vehicles through our award-winning schemes.