10 min read
The Autumn Budget brought significant changes to the landscape of company car taxation, requiring businesses to carefully reconsider their fleet strategies. With benefit-in-kind (BiK) rates now confirmed for the next five tax years, it’s crucial to understand the implications for different vehicle types and plan accordingly to avoid unexpected costs. This blog post will delve into the specifics of these changes, explore the pros and cons of electric vehicles, discuss cost-effective alternatives, and offer guidance on navigating this evolving environment.
Breakdown of the tax updates
The Budget and subsequent Finance Bill provided clarity on benefit on kind percentages for company cars up to 2029/30. While this allows businesses to project tax liabilities, the overall trend points towards increased taxation across the board. Here’s a closer look at the changes:
Zero-emission vehicles (EVs)
While previously enjoying significant tax advantages, EVs will see a steady increase in BiK rates. The rate is set to rise by 1% annually from 2025/26 to 2027/28, followed by a 2% jump each year, reaching 7% in 2028/29 and 9% in 2029/30. Although this represents a considerable increase from the 0% rate of recent years, EVs still maintain a competitive edge compared to petrol, diesel, and hybrid vehicles.
Petrol and diesel cars
Traditional petrol and diesel cars will also experience a rise in BiK rates, albeit at a more moderate pace. The rate will increase by 1% each year, culminating in a maximum of 38% in 2028/29 and 39% in 2029/30.
Hybrid cars
The most significant change impacts hybrid vehicles. Currently, hybrids with emissions between 1-50g/km are taxed based on their electric range. Those with longer electric ranges enjoy lower BiK rates. However, this incentive is being phased out. From 2028/29, all hybrids within this emissions bracket will be subject to a BiK rate of 18%, rising to 19% in 2029/30, regardless of their electric range. This change could drastically increase the tax burden for many hybrid car drivers, particularly those with models boasting impressive electric ranges, potentially making them a less attractive option for company car fleets.
Electric vehicles: Pros and Cons
The shift towards electric vehicles continues to be a prominent trend, driven by environmental concerns and potential cost savings. However, it’s essential to consider both the advantages and disadvantages:
Pros:
- Tax benefits (despite increases): Even with the rising BiK rates, EVs remain relatively tax-efficient compared to petrol, diesel, and even many hybrid vehicles.
- Salary sacrifice advantages: Electric vehicles remain exempt from the Optional Remuneration Arrangement (OpRA) rules, making salary sacrifice schemes a potentially lucrative option for both employers and employees.
- Environmental benefits: Electric cars produce zero tailpipe emissions, which contributes to cleaner air and a reduced carbon footprint. This can also enhance a company’s image and demonstrate its commitment to sustainability.
- First-year allowances: The temporary first-year allowances for businesses purchasing zero-emission vehicles and charging points have been extended to March/April 2026, providing further financial incentives.
Cons:
- Rising BiK rates: As discussed, the BiK rates for EVs are increasing, reducing some of the initial tax advantages.
- Vehicle Excise Duty (VED): The VED exemption for electric cars expires in April 2025. While they will be taxed at the lowest rate, this still represents an additional cost.
- Practical considerations: Range anxiety, limited charging infrastructure, and longer charging times can pose challenges, particularly for employees who frequently travel long distances. Careful consideration of employee needs and access to charging facilities is crucial.
- Purchase price: The initial purchase price of electric vehicles can still be higher than comparable petrol or diesel models, although this gap is narrowing.
Exploring cost-effective alternatives
For businesses seeking cost-effective solutions, several alternatives to traditional company cars warrant consideration:
Company vans
Vans are taxed differently than cars, with a flat-rate benefit rather than a percentage-based BiK charge. This can result in significant cost savings for both employers and employees. However, it’s crucial to ensure the vehicle is classified as a van and not a car, as the rules can be complex, particularly with double-cab pickups.
Double-cab pickups
The classification of double-cab pickups has been a source of confusion. While previously treated as vans in certain circumstances, the rules are changing again. From April 2025, double-cab pickups with a payload of one tonne or more will be treated as cars for BiK and capital allowance purposes. Transitional arrangements are in place for vehicles acquired before April 2025, allowing them to be treated as vans until 2029. Businesses considering double-cab pickups should act quickly to take advantage of the transitional rules.
Hybrid cars (Short-term)
While the long-term tax outlook for hybrids is less favourable, they can still be a viable option in the short term, especially for those who require a balance of electric driving and longer-range capabilities. However, businesses should carefully evaluate lease terms and consider the impending changes to hybrid taxation in 2028/29.
Navigating the changes: A strategic approach
To effectively navigate these changes, businesses should adopt a proactive and strategic approach:
- Assess fleet needs: Carefully analyse the specific needs of your employees and the types of journeys they undertake. This will help determine the most suitable vehicle types for your fleet.
- Model tax costs: Use the confirmed BiK rates to model the tax costs for different vehicle options over their lifespan. This will provide a clearer picture of the long-term financial implications.
- Consider electric vehicles: Evaluate the feasibility of incorporating electric vehicles into your fleet. Explore charging infrastructure options and assess the potential benefits for your business and employees.
- Review hybrid strategy: Reassess your strategy for hybrid vehicles, considering the upcoming changes to their taxation. Determine whether they remain a cost-effective option in the long term.
- Van and pickup assessment: Assess the suitability of vans and double-cab pickups as cost-effective alternatives, keeping in mind the classification changes and transitional rules.
- Lease considerations: Be mindful of lease terms, particularly for double-cab pickups, to avoid being caught out by the transitional rules.
- Explore alternative options: Investigate the potential of company vans and other cost-effective alternatives to traditional company cars.
Seek expert advice
The changes to company car taxation represent a significant shift in the automotive landscape. With the BiK rates confirmed for the next five years, businesses have the opportunity to plan their fleet strategy well in advance. This will help avoid unexpected costs and ensure a smooth transition. Consult with professional tax consultants and fleet management specialists to ensure you fully understand the implications of the changes and develop the most effective strategy for your business.
