Every Electric Company Car Driver Faces a Benefit-in-Kind Tax Rate That Doubles by 2029

• HMRC has confirmed that Benefit-in-Kind tax on fully electric company cars rises from 4 percent this tax year to 5 percent in 2027-28, 7 percent in 2028-29 and 9 percent in 2029-30.
• The rate is still far below the 25 to 37 percent charged on most petrol and diesel company cars, but the gap is closing every April for the rest of the decade.
• Drivers on a salary sacrifice electric car scheme can lock in today’s lower rate for the length of their current lease, so the timing of a new agreement matters.

The Tax Advantage That Is Shrinking Every April

Anyone driving a fully electric company car or using a salary sacrifice scheme to get one currently pays Benefit-in-Kind tax at just 4 percent of the car’s list price for the 2026-27 tax year, a figure that has made electric company cars one of the cheapest ways to get behind the wheel of a new vehicle in Britain. HMRC has confirmed the schedule for the rest of the decade, and it only moves in one direction. The rate rises to 5 percent in April 2027, 7 percent in April 2028 and 9 percent in April 2029. None of this is speculative. Every step is already legislated.

To put the scale of the advantage in context, a petrol company car typically attracts Benefit-in-Kind tax of somewhere between 25 and 37 percent of its list price, depending on emissions. A driver on a £35,000 electric car at the current 4 percent rate pays tax on £1,400 of taxable value. The same driver in a petrol car at 30 percent pays tax on £10,500 of taxable value, a difference that can run into thousands of pounds a year in take-home pay. That gap is exactly why electric salary sacrifice schemes have grown so quickly, with providers reporting savings of 20 to 50 percent against buying or personally leasing the same car outright.

Why the Government Is Letting the Rate Climb

The 4 percent rate was never designed to be permanent. It was set deliberately low several years ago to accelerate electric car adoption among company car drivers and salary sacrifice scheme members, who between them account for a large share of new electric car registrations. With electric cars now a mainstream choice rather than a niche one, the Treasury has scheduled a gradual withdrawal of the incentive rather than a sudden one, giving fleets and individual drivers time to plan around it rather than facing a cliff edge in a single tax year. The government has explicitly ruled out any additional restrictions or caps on salary sacrifice schemes themselves for now, meaning the mechanism continues exactly as before. Only the tax rate applied to the benefit is changing.

Even at 9 percent in 2029-30, electric company cars will remain considerably cheaper to run through Benefit-in-Kind tax than an equivalent petrol or diesel model, since the emissions-based bands for combustion cars are not falling to meet them. The advantage narrows. It does not disappear.

Why the Timing of Your Agreement Matters

The Benefit-in-Kind rate that applies to a company car is generally the rate in force at the start of each tax year the car is held, not the rate at the point the lease or scheme agreement was signed. That means a driver who takes out a new electric salary sacrifice agreement today will still see their tax bill rise in line with the published schedule as each April passes, exactly as an existing driver would. Where the timing does matter is at renewal. A driver weighing up whether to extend an ageing electric lease or switch to a new car should factor in that the percentage applied to whichever list price they are taxed on will keep climbing regardless of which model they choose, so there is no advantage to delaying a decision in the hope of avoiding the increase.

What This Means for the Sums on Your Payslip

On a £35,000 electric car, the taxable benefit rises from £1,400 at 4 percent this year to £3,150 at 9 percent in 2029-30. For a basic rate taxpayer, that is a shift from roughly £280 a year in Benefit-in-Kind tax to around £630 a year by 2029-30. A higher rate taxpayer on the same car sees the bill move from about £560 a year to £1,260 a year over the same period. These are increases spread across four tax years rather than landing in one go, which softens the impact, but they are increases that every driver in an electric company car or salary sacrifice scheme should build into their household budgeting now rather than discovering at the next payslip.

What to Check Before You Commit to a New Scheme

Ask your employer or scheme provider for a year by year breakdown of your expected Benefit-in-Kind cost across the full term of the agreement, not just the first year’s figure, since some scheme comparisons only show the current lowest rate. Check whether your employer’s scheme allows you to exit early without a heavy penalty if your circumstances change, since a typical salary sacrifice agreement runs two to four years and the tax rate will move at least once, and in most cases twice, within that window. Compare the total cost against a plug-in hybrid or a smaller pure electric model if budget is tight, since Benefit-in-Kind is calculated on list price as well as percentage rate, and a cheaper car on a rising percentage can still cost less than an expensive one. Finally, remember that even the 2029-30 rate of 9 percent remains a fraction of what a petrol or diesel driver pays, so the electric option is very unlikely to stop being the cheaper company car choice, even as the gap narrows.

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Sources:

• https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480-appendix-2
• https://tuskercars.com/learning-more-about-benefit-in-kind/
• https://www.fleetalliance.co.uk/business-ev/salary-sacrifice-car-schemes-guide/