The UK government's Autumn Budget must address two critical issues with the company car tax system to support the UK’s “cut-throat” EV market, leasing firms have warned.
A new report by the British Vehicle Rental and Leasing Association (BVRLA) highlights an ongoing imbalance, as retail demand for new and used EVs continues to fall behind channels supported by cheap benefit-in-kind (BIK) tax.
Company cars are taxed based on a CO2 emissions-weighted percentage of their list price, and ultra-low bandings for plug-in cars were reintroduced in 2020 to nudge drivers towards them.
For 2026/27, the percentage is 4% of the list price for electric cars and up to 16% for plug-in hybrids compared with at least 26% for the most efficient petrol and diesel models.
This influences company car and salary sacrifice schemes, in which drivers fund monthly rentals using their gross income and pay BIK on the car at lower rates than the income tax on the wages used to fund it.
As that system is capped at 75g/km of CO2, it effectively limits the benefits to PHEVs and EVs, and it’s often cheaper than leasing privately.
Demand has surged: in 2024/25, 920,000 people were paying BIK tax on a car, which was 200,000 more than in 2020/21, according to the latest HMRC data. Half (467,000) were in EVs, while a quarter (220,000) were in PHEVs.
For BVRLA members, tax incentives have supported a 25% increase in their combined fleet in the past five years to the second quarter of 2026, from 1.37 million cars to 1.67m, but that growth isn’t uniform.
Business contract hire (BCH) volume increased 25% to 986,033 cars, while salary sacrifice volume grew more than tenfold to 285,000 cars, drawing level with the personal contract hire (PCH) fleet, which declined by 8% in the same period.
EVs now account for 90% of BCH volume and almost 100% of salary sacrifice volume, according to BVRLA members, compared with 23% for PCH. Half of the BVRLA's BCH fleet is electric.
Given the importance of BIK tax, BVRLA chief executive Toby Poston stressed that the Autumn Budget, scheduled for publication on 28 October, needs to shore up longer-term support.
“The [BIK tax] rate for electric company cars will reach 9% by 2029/30, but there are no published rates beyond that,” he told Autocar.
“With most agreements lasting three to four years, drivers need greater certainty. We're asking the chancellor to hold BIK [on EVs] at 9% for 2030/31 and 2031/32 and protect the tax advantages of salary sacrifice, particularly for basic-rate taxpayers.”
The wider market also remains challenging as manufacturers engage in what one leasing firm told the BVRLA was a “bloodbath” for market share, caused by an influx of competitive new brands from China and pressure to avoid fines for not meeting zero-emission vehicle (ZEV) mandate targets (which are currently under governmental review).
For leasing companies, “cut-throat” new car pricing also means ex-fleet vehicles are worth less than the value forecast at the start of the contract – a situation that the sector expects to face for at least another year.
However, it’s also producing some attractive deals on new cars for PCH, salary sacrifice and leasing customers.
“New manufacturers are bringing greater choice and competition to the UK market, but the future residual values of some newer models remain uncertain,” said Poston.
“Both PCH and salary sacrifice allow drivers to access a vehicle without taking direct responsibility for its eventual resale value, which is particularly attractive given the volatility we've seen in used EV prices.”
To help spread the losses, some firms told the BVRLA they're willing to keep vehicles on their books for up to seven years, which is creating a growing market for used car leasing, especially in salary sacrifice and PCH.
Members now have 21,929 used PCH cars (up 529% year on year) and 10,685 used salary sacrifice cars (up 168%) on their fleets.
As monthly rentals for salary sacrifice can’t take the driver’s remaining income below the national minimum wage, cheaper vehicles make those schemes – and EVs – accessible to a wider audience.
However, the used market is price-sensitive. Leasing firms claimed monthly rental fees for used cars must be 10-40% lower than aggressively priced, longer-range new cars to find customers, while the incoming eVED pay-per-mile tax for EVs is also a potential barrier that Poston said needs “rethinking”.
“Used EV leasing is growing rapidly," he continued. "As the electric fleet continues to expand, more vehicles will enter the used market, making it increasingly important that demand keeps pace with supply. Yet drivers choosing a used electric company car are still taxed on its original list price, even when the vehicle is worth substantially less.
"The BVRLA is proposing a fair and proportionate solution: calculating BIK on 35% of the original [list price] for EVs aged three years or more. This would better reflect the value of a used vehicle, make electric motoring more accessible to lower-income households and help stimulate demand in the growing used EV market."