Photograph: Pexels
Company car tax now runs to 2030/31, and the electric rate reaches 10%
The Budget filled in the last missing year of benefit-in-kind rates. Fleets can plan further ahead, and the gap between electric and plug-in hybrid narrows.
Fleet managers have spent two years asking for one thing above all others: the company car tax rates for 2030/31. The Budget published them. Every benefit-in-kind (BiK) band rises by one percentage point above its 2029/30 rate, capped at 40%, which means a zero emission company car goes from 9% to 10% for that year, as Fleet News reported.
That is the last piece of a schedule that has been visible in stages, and seeing it whole changes how a four-year lease signed this autumn looks by the time it ends. The electric car rate runs 4% in 2026/27, 5% in 2027/28, 7% in 2028/29, 9% in 2029/30 and 10% in 2030/31, per HMRC's appropriate percentage tables and the Budget's addition.
What the arithmetic looks like
BiK is charged as a percentage of a car's P11D value, the list price including VAT and delivery, and the resulting figure is taxed at the driver's income tax rate. Take an electric car with a P11D value of £40,000. At the current 4%, the taxable benefit is £1,600 a year, which costs a basic rate taxpayer £320 and a higher rate taxpayer £640. At 10% in 2030/31, the same car produces a £4,000 benefit, costing £800 for a basic rate taxpayer and £1,600 for a higher rate one. In monthly terms, that is £67 against £27 for a basic rate driver.
The increase is real, and it is smaller than the gap to a petrol or diesel equivalent. A car in the 32% band throws off eight times the taxable benefit of a 4% electric car, which is the reason company car schemes have become the most effective route into electric driving for people who would not buy one privately.
For a higher rate taxpayer the cash numbers are bigger and the pattern is the same. The same £40,000 electric car costs £640 a year today at 4% and £1,600 a year at 10% in 2030/31, a rise of about £80 a month. A driver in the 40% band weighing an electric car against a petrol one at 32% is comparing £1,600 with £12,800 of taxable benefit, before either car's running costs are counted.
Salary sacrifice is where most of this bites. An employee gives up gross salary for a leased car, and the amount taxed is the higher of the salary sacrificed or the standard BiK calculation, so a low percentage rate keeps the arrangement worthwhile. At 4% it is close to unbeatable for a basic rate taxpayer, and at 10% it is still the cheapest way most people will ever drive a new car.
The plug-in hybrid catch
The harder change sits in the plug-in hybrid ranks. From April 2028, plug-in hybrids emitting between 1 and 50g/km move into a flat 18% band regardless of electric range, after the 2024 Budget removed the extra credit for longer range, and the 2030/31 rise takes that band to 20%.
Our own guide to company car tax and electric cars sets out how those bands shifted, and the practical effect is a squeeze on the cars that were sold as a halfway house. A plug-in hybrid with a £40,000 list price at 20% generates an £8,000 taxable benefit, which costs a basic rate driver £1,600 a year, £133 a month. The same driver in an electric car at 10% pays £67.
The 2030/31 rates therefore finish a job that has been visible in the published tables for years: they make the plug-in hybrid a transition technology in tax terms as well as in engineering terms, and they remove the argument that a plug-in is close enough to electric for company car purposes. We looked at the ownership case for plug-ins in this piece on the PHEV dilemma.
Why the certainty matters more than the number
Richard Jones, chief executive at the leasing company Zenith, made the point that the industry has been making for two years. "Consistency matters, businesses and drivers make vehicle decisions years in advance, and stable policy gives them the confidence to invest," he said. He added that 79% of vehicles ordered through Zenith's company car schemes and 91% through salary sacrifice are now fully electric.
That proportion is the strongest evidence for how much of the electric market is now carried by company car tax. It also explains why a one-point rise is not the story: the story is that a driver ordering a car this month can state the tax cost for every year of the lease, and an employer can model the whole cycle without guessing.
The Budget also confirmed changes to the reporting of benefits in kind, including company cars, vans and fuel, from April 2027, which moves part of the payroll process onto a real-time footing and reduces the year-end correction work. That is administrative rather than financial, and it matters most to fleets running dozens of cars.
What a driver should take from it
For anyone choosing a company car now, the electric advantage is intact and narrowing on a published timetable. A four-year lease signed this autumn will span rates of 4%, 5%, 7% and 9%, and the car will be handed back just as the 10% year begins. A plug-in hybrid on the same cycle will move from a single figure band into 18% and 19% while the driver still has it, which is a bigger jump than anything facing an electric driver.
The other point worth noting is that the rates are published as percentages, so they interact with list price. A more expensive electric car with more equipment still carries a larger benefit in cash terms at the same percentage, and the 40% cap on the bands means the very highest-emitting cars do not keep climbing. Our guide to fleet charging arrangements covers the other half of the company car calculation, which is who pays for the electricity.