January 23, 2026
Sara Davies
Articles
Vehicle fleet operators and drivers will need to navigate a number of tax changes from April 2026, with increases to company car tax alongside forthcoming rises in fuel duty, among a host of changes.
How much company car tax will I pay?
From April, HMRC tax on company cars will rise by one percent. Fully electric vehicles will attract a BIK rate of 4% in the 2026/27 tax year, rising from the current 3%.
The increase will push the monthly cost for a basic-rate taxpayer driving a £40,000 EV from £20 to £26.67, though the exact figures vary slightly based on the P11D calculation (which includes registration/delivery).
What’s the tax situation for PHEVs?
The Government’s introducing a notional CO2 emissions value for certain plug-in hybrid electric vehicle (PHEVs) affected by the tighter Euro 6e-bis emissions testing regime.
Confirmed in the Autumn Budget, a temporary BIK easement will apply to impacted PHEVs registered between January 1, 2025 and April 5, 2028.
During this period eligible PHEVs will be assigned a nominal CO2 figure of 1g/km for BIK purposes, rather than using the emissions value shown on the vehicle’s registration documentation.
To qualify for the PHEV BIK easement, vehicles must meet the following criteria:
- First registered on or after January 2025
- Have a stated Co2 emissions figure of 51g/km or higher
- Be registered under an emission standard other than Euro 6d-ISC-FCM or Euro 6e
- Offer an electric only range of at least one mile
What’s necessitated an easement?
The measure originated as a policy response to the new, more stringent Euro 6e-bis emissions testing standard, which would have resulted in significantly higher official CO₂ figures (and thus higher BIK tax) for PHEV. It’s designed to avoid PHEV owners suddenly facing a tax “cliff edge” during the period where the new testing standard is adopted.
Why weren’t PHEVs assessed accurately for emissions in the first place?
The official testing protocols relied on flawed assumptions about how PHEVs would be used in the real world. While laboratory tests suggested they were up to 75% cleaner than petrol cars, real-world data now shows they often emit five times more CO₂ than their official ratings, with primary reasons for this inaccuracy including an overestimated “utility factor” assuming an 84% electric driving share instead of the actual 27%, a misunderstanding of the emissions resulting from the electric-only mode, and an assumption of the cars starting with full batteries.
Vehicle excise duty changes
Vehicle excise duty (VED) rates will rise in line with inflation from April.
From April 2025, electric vehicles became liable for the VED surcharge (the ‘expensive car supplement’). However, the Treasury has increased the price threshold at which new electric cars become subject to this surcharge, raising it from £40k to £50k effective from 1 April 2026, which applies retrospectively to EVs registered from 1 April 2025. This additional charge, which is currently £425 per year (2025/26), applies from the second to the sixth year of ownership for any new vehicle with a list price of above £50,000. The £50k limit includes factory-fitted optional extras and is based on the manufacturer’s list price, not the discounted price paid by the customer.
The annual surcharge will rise from £425 to £440 from April 2026.
Fuel duty increases
As outlined in the Autumn Budget, fuel duty will remain frozen at current levels until September 2026. From that point, duty will rise by 1p per litre (from September 1, 2026) followed by a further 2p increase from December 1, 2026 and another 2p from March 1 2027.
The Office for Budget Responsibility (OBR) estimates that extending the fuel duty freeze will cost £2.4bn in the 2026/27 financial year.
Van and fuel benefit charges
For 2025/26, the van benefit charge stands at £4,020 with the car fuel benefit multiplier set at £28,200 and the van fuel benefit charge at £769.
From April 2026, the flat-rate van benefit will rise to £4,170 while the car fuel benefit multiplier will increase to £29,200. The van fuel benefit charge will also rise, reaching £798.
First year-allowances for leased vans
From January, the Government has introduced a 40% first-year capital allowance for leased vans. Industry analysts believe that change could encourage more flexible fleet acquisition strategies and allow operators to grow or renew their van fleet at a faster pace.
Previously leased vehicles were excluded from first-year allowances, meaning businesses that leased vans could not access the tax reliefs available under full expensing for outright purchases.
The new policy removes that disparity, providing an upfront deduction that improves cashflow for businesses.
Future electric vehicle taxation
Although not scheduled to be introduced until 2028, the Government is developing plans for a new pay-per-mile tax governing EVs, including PHEVs.
The proposed electric vehicle excise duty (eVED) announced in the Budget, would be set at 3p per mile for battery electric vehicles and 1.5p per mile for plugin-hybrids.
Plug-in hybrids will be at risk of becoming the vehicles most adversely affected by future UK tax rules, largely as a result of the ultimate hike post-easement of the BIK rates being so substantial, in addition to the proposed 2028 eVED being payable on top of fuel tax (given that hybrids run on both electric and traditional fuel).
The Association of Fleet Professionals (AFP) is encouraging fleet operators to take part in consultation and help shape the future of EV taxation.
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