Will Hybrid Car Leasing Options Reduce Company Car Driver's Benefit in Kind Tax in 2026?

Company car Benefit in Kind (BiK) rates have continued to increase for petrol and diesel cars in recent years - however, the same cannot be said for hybrid and electric vehicles, which remain significantly more tax efficient options for drivers and fleet operators alike.

The low rates available on some hybrid cars can result in significant variations between similar vehicles, as we have discussed previously in our A Tale of Two SUVs piece. Understanding the current landscape is essential for any company car driver or fleet manager looking to make an informed decision heading into the new tax year.

To understand whether company car rates will continue to favour greener alternatives, it is important to understand the available options:

Electric Vehicle Leasing

2025 was a landmark year for electric vehicles in the UK. According to the Society of Motor Manufacturers and Traders (SMMT), almost half a million battery electric vehicles (BEVs) - 473,348 units - were registered during 2025, representing a 23.4% market share. This places the UK as one of the largest EV markets in Europe by volume.

Despite this strong growth, the EV market still faces familiar headwinds:

1. Vehicle acquisition costs remain higher than combustion alternatives, though the gap is narrowing

2. Electric driving range has improved considerably, but concerns remain for high mileage drivers

3. Public charging infrastructure continues to expand, though affordability and reliability remain issues

4. Some models still carry long lead times, though manufacturer investment has increased choice to over 160 BEV models in the UK

The good news for 2026 is that electric cars remain the most tax efficient company car option, attracting a BiK rate of just 3% in 2025/26, rising to 4% in 2026/27 and 5% in 2027/28. With confirmed rates through to 2028, fleet managers have genuine planning certainty for the first time in years.

Note: From April 2028, the UK Government will introduce a mileage based charge on electric and plug-in hybrid cars. Fully electric cars will attract approximately 3p per mile, while plug-in hybrids will be charged around 1.5p per mile. For typical annual mileage of 10,000 miles, this adds roughly £300 per year on top of BiK tax - a factor worth including in long-term fleet planning.

Hybrid Vehicle Leasing

Hybrid vehicles continue to offer a compelling middle ground, allowing drivers to take advantage of electric driving for shorter journeys - and the associated BiK savings - without the range anxiety associated with full EVs. In 2025, hybrid electric vehicles (HEVs) achieved a 13.9% market share, with plug-in hybrids (PHEVs) growing fastest of all powertrains, rising 34.7% year-on-year to 11.1% of registrations, according to SMMT.

For more detail on the differences between vehicle types, take a look at our Electric & Hybrid Vehicle Leasing Guide.

A Plug-In Hybrid Vehicle (PHEV) is powered by either a battery or a conventional internal combustion engine (ICE). Battery only range has improved markedly and now typically sits between 20–70 miles for most current models, with some premium PHEVs achieving over 60 miles of zero emission driving. The driver can switch freely between electric and combustion power as their journey demands.

Because PHEVs can be driven in electric only mode, they typically carry lower official CO2 figures than their combustion equivalents, translating directly into lower BiK rates for drivers and reduced Class 1A National Insurance liability for employers.

An important note for 2026: From April 2026, the UK adopts the Euro 6e-bis emissions standard. PHEVs are being retested under a more representative cycle that better reflects real-world driving, covering a longer distance than before. For some models, this will push official CO2 figures upward, potentially moving them into a higher BiK band. Drivers should check the latest WLTP-tested CO2 figure for their chosen vehicle before ordering, as emissions free range remains the key determinant for sub-50g/km PHEVs.

Company Car Tax Impact

From April 2025, hybrid vehicles with under 50g CO2 emissions attract a BiK rate of 5%–14% depending on their all-electric range. This compares very favourably with the standard petrol vehicle rate - which for a car emitting over 155g CO2 reaches 37% - and a diesel surcharge of 4% for vehicles that are not RDE2 compliant.

The table below outlines current PHEV BiK bands (2025/26) for sub 50g CO2 vehicles based on electric only range:

130+ miles electric range: 5% BiK

70–129 miles electric range: 8% BiK

40–69 miles electric range: 12% BiK

Under 40 miles electric range: 14% BiK

These rates are set to increase by 1 percentage point per year through to 2027/28 - but even so, PHEVs will remain significantly cheaper to run as a company car than an equivalent petrol or diesel model for the foreseeable future. By comparison, petrol/diesel vehicles with emissions above 155g/km face the maximum 37% BiK rate.

BMW X5 Example

How does this play out in practice for a typical executive SUV choice? Here is an updated comparison for the 2025/26 tax year using the BMW X5 range:

BMW X5 xDrive30d M Sport – Diesel - P11D value approximately £72,000. With CO2 of around 181g/km, this sits in the 35% BiK band. For a 40% taxpayer, that equates to approximately £840 BiK tax per month.

BMW X5 xDrive50e M Sport – Plug-In Hybrid - P11D value approximately £83,310. With CO2 of 21g/km and an electric only range of around 63 miles, this sits in the 8% BiK band for 2025/26. For a 40% taxpayer, that equates to approximately £222 BiK tax per month.

A saving of over £600 a month in Benefit in Kind tax versus the diesel variant!

Key point: For PHEVs with CO2 under 50g/km, the emissions free range (electric only range) determines the specific BiK band. Always verify the official WLTP-tested electric range for your chosen vehicle before placing an order, particularly in 2026 where Euro 6e-bis retesting may affect some models' published figures.

Hybrid Car Leasing Options

There are now well over 300 hybrid and plug-in hybrid vehicle options available to lease - a number that continues to rise week on week as manufacturers bring new electrified models to market. Below, we summarise the key options across each vehicle category.