The Government’s recent relaxation of the Zero Emission Vehicle (ZEV) Mandate will allow the continued sale of petrol plug-in hybrids (PHEVs) and hybrid vehicles until 2035. The policy shift offers short-term flexibility for company car drivers who are unable to transition easily to fully EVs, particularly those in rural areas or with high mileage demands.
However, Grosvenor Leasing, a privately owned fleet management, contract hire and EV salary sacrifice company, has cautioned that the benefit-in-kind (BIK) tax advantage for plug-in hybrids will significantly diminish by 2028.
Tax incentives to decline sharply
Under the current rules, PHEVs such as the BMW 330e attract a 9% BIK tax band for the 2024/25 tax year. For a 40% taxpayer, this equates to an annual cost of £1,734. Over the next two years, the tax band rises incrementally to 11%, pushing the tax cost to £2,120 by 2026/27.
From April 2028, however, the BIK rate is scheduled to jump to 18%. This would increase the annual tax liability for a 40% taxpayer to £3,468, effectively doubling the current cost.
Lee Brown, managing director at Grosvenor, warned: “Fleets and company car drivers should not be lulled into a false sense of security regarding plug-in hybrids. While the cars can now remain on sale until 2035, the Government’s tax treatment becomes less favourable after three years.”
Strategic shift recommended for fleets
Despite the tax increases, PHEVs are expected to remain a more financially viable choice than traditional petrol or diesel models, particularly as internal combustion engine (ICE) options become less available due to the ZEV Mandate.
Brown noted that PHEVs will serve as a transitional option for drivers not yet ready for battery electric vehicles (BEVs), but their cost advantage is temporary. He advised fleet managers to begin scaling back PHEV options in advance of the 2028/29 tax changes.
“While plug-in hybrids play a useful role in helping fleets to decarbonise, they really have a limited window before fleets should move fully to electric cars,” said Brown. “We would advise fleet managers to begin reducing the choice of plug-in hybrids on their car policies before the start of the 2028/29 tax year.”
Grosvenor said it will continue to advise fleet operators on how to respond to the policy and tax environment to maintain cost-efficiency and advance electrification targets.
