Tax incentives for fully electric company car drivers will remain in place after 2028 but hybrids will be hit by higher rates, the Treasury has announced in the Autumn Budget.

The Government said it wanted to support the take-up of electric vehicles

Chancellor Rachel Reeves said the Government would maintain tax incentives to purchase zero-emission vehicles through the company car tax regime until the end of the decade while also extending 100% First Year Allowances for electric cars and charge points for a further year.

Reeves, who said the Government wanted to support the take-up of electric vehicles, also announced that the differential between fully electric and other vehicles would increase in the first year rates of vehicle excise duty from April 2025. The Budget also referred to the Government’s commitment to phase out new internal combustion engines cars by 2030.

Under company car tax, fully electric vehicles qualify for a low Benefit-in-Kind rate of 2% in the current tax year, rising to 3% in 2025/6, 4% in 2026/27 and 5% in 2027/28.

The Chancellor has now revealed a 2 percentage point rise for 2028/29 and 2029/30, increasing BiK to 7% and 9%.

But rates for hybrid vehicles will rise and will now solely be based on CO2 emissions, rather than including zero-emission mileage, aligning them more closely with rates for internal combustion engine (ICE) vehicles “to focus support on electric vehicles”.

As such, the appropriate percentages for cars with emissions of 1-50g/km of CO2, including hybrids, will rise to 18% in 2028/29 and 19% in 2029/30.

And the appropriate percentages for all other vehicle bands will increase by 1 percentage point per year in 2028/29 and 2029/30. The maximum appropriate percentage will also increase by 1 percentage point per year to 38% for 2028/2029 and 39% for 2029/2030 and the minimum appropriate percentages will rise to 19% and 20% respectively.

VED first-year rates

Zero-emission cars will pay the lowest first-year VED rate of £10 until 2029/30

The Government also said it would change the VED first-year rates for new cars registered on or after 1 April 2025 to strengthen incentives to purchase zero-emission and electric cars, by widening the differentials between zero-emission, hybrid and internal combustion engine (ICE) cars.

Zero-emission cars will pay the lowest first-year rate at £10 until 2029/30.

Rates for cars emitting 1-50g/km of CO2, including hybrid vehicles, will increase to £110 for 2025/26, while rates for cars emitting 51-75g/km of CO2, including hybrid vehicles, will increase to £130 for 2025/26.

All other rates for cars emitting 76g/km of CO2 and above will double from their current level for 2025/26.

The Treasury also acknowledge the widespread condemnation of the move under the previous government to levy the VED Expensive Car Supplement for electric vehicles priced over £40,000 from April 2025, as announced in the 2022 Autumn Statement.

Labour said it recognised the “disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero-emission cars” and would consider raising the threshold for zero-emission cars only at a future fiscal event “to make it easier to buy electric cars”.

End to ‘contrived car ownership schemes’

The Government also said it would publish draft legislation relating to loopholes in car ownership arrangements, through which an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.

This arrangement means those benefiting don’t pay company car tax and the new measure will seek to level the playing field. The changes will take effect from 6 April 2026.

Certainty around company car tax to maintain fleet electrification

While fleets had been left in the dark about rates beyond 2027/28, today’s Budget sets out a clear pathway and gives certainty for fleets and drivers making decisions while also continuing to support the shift to EVs.

Paul Hollick, chair of the AFP, said the rises in company car tax were at the lower end of its expectations

The Association of Fleet Professionals, which had urged the new government to keep BiK rises incremental, said the rises in company car tax were at the lower end of its expectations.

Paul Hollick, chair of the AFP, added: “This new certainty around tax will, in our opinion, maintain the ongoing electrification of car fleets, especially in establishing a marked differential compared to hybrids. Similarly, the increased differential in first-year tax rates for electric cars is to be welcomed although, being a one-off cost, will have a much more limited impact.”

Hollick also welcomed the surprise ongoing freeze in fuel duty after a removal of the five pence discount was widely predicted.

“With these two measures, it does seem like a potentially promising start for this government and its policy towards fleets. However, there remains quite a long list of issues that we would like to see resolved in the short-medium term – ranging from 4.25 tonne electric van derogation through to ongoing difficulties surrounding the ZEV Mandate. Conversations covering at least some of these problems are underway and we await their outcome with interest, he continued.

“It’s also a relief for many car owners that Reeves resisted introducing a pay-per-mile vehicle tax, which would have raised costs for those most reliant on their vehicles.”