Upcoming changes to company car tax, particularly to the Benefit in Kind (BiK) rules, are set to make some vehicles much less attractive to businesses signing up for new cars and fleets in 2025. With BiK rates confirmed up to 2029/30, you’ll need to consider how these changes affect the cost over any new vehicles’ lifetimes.

So what’s changing?

Well, it’s not all bad. You can calculate tax charges for the next five tax years if you’re due to enter into a new lease or purchase agreement. That said, those tax charges are rising across the board:

• Percentages for zero emissions (pure electric) cars will increase by 1% from 2025/2026 to 2027/2028 and then by 2% yearly to reach 9% in 2029/2030.
• Percentages for all other cars will rise by 1% annually, up to a maximum of 39% in 2029/2030

Which company vehicle should I opt for, proceed with caution and which should I avoid full stop?

Avoid full stop – Petrol and diesel

Petrol and diesel (normal cars and gas guzzlers with high Co2 emissions).  For many years, these have been a no-go as company cars. This is still the same.

Proceed with caution/ avoid  from 6th April 2028  – Hybrid vehicles

Until 2027/28, the BiK rate for hybrids with 1-50g/km emissions will depend on their electric range. The further the car goes on a single charge, the lower the percentage tax rate.

This changes in 2028/29, when all hybrids in this category will be taxed at 18% (increasing to 19% in 2029/30) regardless of their range.

Ultimately, it could mean an overnight increase from 5% (the current rate for the most efficient hybrids with 1-50g/km emissions) to 18%, making hybrids a much less attractive company car choice in the future.

It’s something to consider if you’re thinking about purchasing or leasing a hybrid long-term.

Opt for – Zero emissions (pure electric) vehicles

For the last few years, 100% electric has been the only real choice for a company car, which remains the same. Though BiK rates for electric vehicles will rise, they remain a competitive and environmentally friendly option compared to hybrids or petrol/diesel cars: 

Pros

• Tax Savings: Pure electric vehicles remain eligible for salary sacrifice arrangements (not relevant for company directors on basis salary) and exempt from OpRA rules, offering potential tax benefits for employers and employees.
• Incentives Extended: First-year allowances for businesses purchasing zero-emission cars and charging points are extended to March/April 2026.
• Employee Appeal: Electric cars can help attract and retain staff while enhancing a company’s green image.

Cons

• Rising Tax Rates: BiK rates for electric vehicles will rise to 9% by 2029/30, a significant increase from 0% in 2021/22.
• VED Exemption Ending: Vehicle Excise Duty (VED) for electric cars ends in April 2025, though rates will be the lowest available.
• Practicality Issues: Challenges include limited charging infrastructure and range concerns, particularly for employees who travel long distances or lack home charging access.

Read more about the advantages of electric vehicles here.

Consider as an alternative to 100% electric – Vans and double-cab pickups

The ‘appropriate percentage’ increases don’t apply to vans, making them a cost-effective option as a company vehicle. This does come with a couple of caveats: 

• Employees are taxed at their marginal rate on a flat rate benefit (van benefit for 2024/2025 is currently £3,960). While this is set to increase with inflation from April 2025, to £4,020 it’s still a good option (for a 40% taxpayer this will cost you £1,808 in tax per annum) 
• From April 6, 2025, double-cab pickups with a payload of one tonne or more will be treated as cars for capital allowance and BiK purposes. If you purchase, lease or order a double-cab pickup before April 5 2025, it will be classed as a van until it is disposed of; the lease expires or until April 5, 2029.  So if this is an option your considering a double cab pick up you need to act now before 5th April 2026, otherwise its not an option as van anymore.

Do make sure the vehicle is classed as commercial and not a car-derived van. Check with us if unsure…

In summary

With BiK rates confirmed up to 2029/30, you can avoid costly tax surprises further down the line by carefully considering company vehicle options. Electric is a better option than hybrid long-term, and if you’re considering purchasing a double-cab pickup in the coming year, make sure you place your order before April 6, 2025! 

If you’re updating your company car of fleet soon and want to check you’re doing the right thing, just give us a call! We’re always on hand to help out.