Millions of UK motorists are set for a confirmed increase in their car tax bills, with a 1% rise in Benefit-in-Kind (BIK) rates scheduled for April 2026. The change, emerging from government policy, will impact drivers using company cars.
Electric Vehicles Maintain Tax Advantage, For Now
Despite the upcoming hike, electric vehicles (EVs) continue to offer the most favourable tax position for drivers. For the 2025/26 tax year, the BIK rate for electric cars remains at a low 3%, providing substantial savings compared to petrol, diesel, and hybrid models.
However, this rate is set to incrementally climb. It will first move to 4% from April 2026. Following that, the government has outlined a plan for the rate to increase by 2 percentage points per year in both 2028-29 and 2029-30. This trajectory will see the BIK rate for electric company cars reach 9% by the 2029-30 tax year.
Industry Reaction: Clarity Welcomed, But Concerns Remain
Thom Groot, CEO and Co-Founder of The Electric Car Scheme, stated that the government's clear timeline provides useful certainty for businesses and employees. "Before the Autumn Statement of 2024, we had no clarity on whether the BIK rate would stay at 2% or make a huge jump to 25%," he said. "Now we know it will rise by 1% every year from 2025, topping out at 9% in 2029."
Groot emphasised that this clarity is crucial because much of the company car market operates on three or four-year leases. Previous uncertainty was preventing people from choosing cleaner vehicles. However, he argued that a longer period of lower taxation would better incentivise the switch to electric transport.
"Growing the electric company car market is good for everyone because today’s company cars are tomorrow’s second-hand vehicles," Groot added, highlighting the trickle-down effect of a robust EV company car fleet.
Understanding Benefit-in-Kind and Road Tax
Benefit-in-Kind tax is a levy on employees who receive benefits—such as a company car, private healthcare, or accommodation—on top of their salary. The tax owed is typically deducted directly from wages via the Pay As You Earn (PAYE) system.
Commenting on separate Vehicle Excise Duty (VED or 'road tax') changes for EVs, Groot acknowledged the rationale. "We do understand the need to charge road tax from electric car owners to keep roads maintained (we all use them after all), so are not against the move to increase VED rates," he stated.
The confirmed BIK schedule now allows businesses and employees to plan their vehicle choices for the coming years with greater confidence, even as the cost advantage for electric cars gradually narrows.
