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For many businesses and employees, company vehicles remain an essential part of work life. Whether it’s a fully electric car, a van for daily operations, or a double-cab pick-up, understanding how tax rules apply to these vehicles is more critical than ever.
New company car tax rules will take effect in the 2025/26 tax year, with further changes scheduled through 2029/30. These changes impact both the tax cost to employees and the employer’s liability through National Insurance contributions.
Company Car Tax: The Basics
When an employee has access to a company car for private use, a taxable benefit arises. This benefit is based on a percentage of the car’s list price, known as the “appropriate percentage,” which is influenced by the car’s CO₂ emissions. The higher the emissions, the higher the percentage—and the more tax payable.
The calculation also considers any employee contributions and how long the car is available during the year.
What’s Changing in 2025/26?
Increased Benefit-in-Kind (BIK) Percentages: From April 2025, the percentages used to calculate company car tax benefits will increase by 1%. For example:
- Electric cars will now be taxed at 3% of their list price, up from 2%.
- The top rate of 37% will still apply for cars with CO₂ emissions of 155g/km or more.
Example: If an electric company car has a list price of £30,000, the BIK value increases from £600 to £900. For a higher-rate taxpayer, that’s an extra £120 in tax for the year.
What About Employer Costs?
Employers pay Class 1A National Insurance on the value of the car benefit. With the BIK percentages rising and the NIC rate itself increasing from 13.8% to 15%, the cost of providing company cars is going up for businesses, too.
Future Increases: 2026 to 2030
The government has already announced further increases in BIK rates for future years:
- 2026/27: Electric cars rise to 4%
- 2027/28: Rise to 5%
- 2028/29: Rise to 7%
- 2029/30: Rise to 9%
Plug-in hybrid vehicles (those emitting 1-50g/km CO₂) will also see steep increases. For example, those with long electric ranges (over 130 miles) will jump from 3% to 18% by 2028/29. That’s a six-fold increase in tax liability over just three years.
Fuel for Private Use: Is It Worth It?
If an employer pays for an employee’s private fuel usage, an additional taxable benefit arises. For 2025/26:
- The fuel benefit multiplier is £28,200.
- This amount is multiplied by the car’s BIK percentage to calculate the extra tax.
Example: An employee with a petrol car taxed at 30% and using free fuel would pay tax on £8,460 of benefit (£28,200 × 30%). At 40% income tax, that’s £3,384 a year.
Unless the employee drives significant private mileage, it’s often more cost-effective for them to pay for their fuel and avoid this extra tax altogether.
Note: Electricity is not classed as “fuel ” for electric cars, so there’s no tax on home or public charging costs paid by the employer.
Van Benefits: Still a Simpler Deal
Van benefits remain relatively straightforward:
- The taxable value for vans with unrestricted private use is £4,020 in 2025/26.
- The fuel benefit for private van use is £769.
- Electric vans still benefit from a 0% benefit-in-kind rate.
Where van use is limited to business purposes and commuting, no tax arises at all.
Double-Cab Pick-Ups: A Major Reclassification
Starting in April 2025, double-cab pick-ups will no longer be automatically classed as vans based on payload. Instead:
- If primarily suited to carry goods, it’s a van.
- If equally or more suited for people, it’s a car—and taxed like one.
This change could significantly increase tax charges for those currently benefitting from the lower van BIK rate.
Transitional relief applies until April 2029 for vehicles purchased or leased before April 2025.
Planning Ahead: What Employers and Employees Should Do
With tax charges increasing and rules tightening, careful planning is essential:
For Employers:
- Reassess fleet policies—especially around diesel or hybrid vehicles.
- Factor in higher NICs and fuel benefit costs when setting vehicle budgets.
- Educate staff on how personal fuel usage could cost them more than it saves.
For Employees:
- Consider the total tax impact of your vehicle—especially if opting for higher-emission models.
- Avoid accepting free fuel unless your private mileage justifies it.
- Explore electric vehicle options while they still offer lower BIK rates.
Company car tax is becoming increasingly complex—and increasingly expensive, especially for higher-emission vehicles. With changes scheduled all the way to 2029/30, both employers and employees must be proactive. Choosing the right vehicle and understanding the full cost implications will help you avoid unpleasant surprises and make the most of available tax advantages.
Need help to understand your company car tax situation?
At Tax Accountant, we provide tailored tax advice for both employers and employees. Whether you’re planning to upgrade your fleet or trying to understand your latest P11D, our expert team is here to guide you through the numbers. Book a consultation today to plan smarter for the years ahead.