The recent Autumn Budget, delivered by Chancellor Rachel Reeves, introduced changes to benefit-in-kind (BIK) taxation that will affect a range of vehicles, including hybrid and electric cars as well as double cab pick-up trucks. The new policies reflect the government’s push to advance the transition to fully electric vehicles (EVs) while discouraging plug-in hybrid electric vehicle (PHEV) use.
In this article, we explain the existing tax treatment of these vehicles and provide an overview of the changes that are going to be phased in over time following the Budget. We’ll highlight what businesses and employees should take into consideration and how to seamlessly adjust to the updates.
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Current tax treatment of company vehicles
Company cars made available for private use create a taxable BIK, with the percentage of tax employees must pay dependent on the type of car, its CO2 emissions and electric range. Here’s how they are presently structured:
- Fully electric cars:
As this time, electric cars benefit from the lowest BIK rate at 2%, making them highly tax-efficient for businesses and employees.
- Hybrid cars (PHEVs)
PHEVs are taxed based on their electric range. Currently, cars with an electric range of over 130 miles are taxed at a 2% BIK rate, while those with a range of fewer than 30 miles are taxed at 14%.
- Petrol and Diesel Cars:
These cars are taxed based on their COâ‚‚ emissions. Currently, petrol cars start at 15% for low-emission models (around 51g/km) and rise to 37% for emissions of 160g/km and over. Diesel cars follow a similar structure but face a 4% surcharge unless compliant with RDE2 standards (subject to an overall cap of 37%).
- Double Cab Pick-Up Trucks:
Historically classified as vans for tax purposes, double-cab pick-up trucks are taxed at a flat-rate of £3,960 for the 2023/24 tax year. However, from 6 April 2025, pick-ups with a payload of one tonne or more will be treated as cars for BIK and capital allowance purposes. Vehicles purchased before this date can retain their van classification under transitional rules until April 2029 at the latest.
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The new tax treatment of company vehicles following the Budget
The government redefined the BIK tax landscape for company cars, introducing adjustments which are set to roll out gradually over the coming years. We’ve outlined below the changes you can expect to see:
- Fully electric cars:
BIK rates for EVs will rise incrementally from 3% in 2024/25 to 9% by 2029/30. While this represents a notable increase, EVs remain a tax-efficient option compared to other vehicles. EVs will also lose their Vehicle Excise Duty (VED) exemption in April 2025, though they will still be taxed at the lowest rate.
- Hybrid cars (PHEVs):
Hybrids will see the steepest increase in BIK rates, with all models facing a 19% tax charge by 2029/30, regardless of their electric mileage.
- Double cab pick-ups:
From 6 April 2025, double cab pick-ups with payloads of one tonne or more will be taxed as cars, leading to higher tax costs. Vehicles purchased, leased, or ordered before this date will temporarily retain van classification until the date of disposal, or expiry of the lease, or 6 April 2029 if sooner.
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What this means for the future of company vehicles in the UK
The recent changes in BIK taxation are likely to expedite the shift from hybrid to fully electric vehicles in the UK. With hybrid BIK rates set to rise significantly, businesses and individuals may increasingly opt for electric cars, which remain more tax-efficient despite their own gradual rate increases. This development aligns with the government’s green agenda, encouraging companies to adjust their vehicle policies and meet sustainability goals. Ultimately, these tax changes could contribute to the UK’s climate targets, driving further investment in EV infrastructure and influencing the automotive industry’s transition towards electric vehicle production.
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Practical steps for businesses to adjust to the new tax rules
As businesses navigate the changes to BIK taxation, it’s crucial to take a proactive approach to fleet management and employee benefits. Here are some steps you can take to help your business adjust:
- Evaluate your fleet: assess whether hybrid or fully electric vehicles are the most suitable options, keeping in mind the long-term tax implications.
- Discuss with tax professionals: the new rules are complex. Engaging with tax experts can help ensure a full understanding of how the changes apply and help minimise tax liabilities.
- Consider employee preferences: with the impact on taxable benefits, it’s essential to gauge employee interest in vehicle options. Offering choices aligned with the new BIK rules can enhance employee satisfaction while supporting the business’s sustainability efforts.
- Plan for the long-term: take a strategic approach to fleet planning by considering the future of mobility and sustainability. Forward-thinking policies will help support environmental goals and remain tax efficient.
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How we can help you
Our tax specialists are fully equipped to help you navigate these changes, offering tailored advice to ensure your business remains tax-efficient and sustainable. We’ll support you in making strategic decisions around fleet management and positioning your business to benefit from these adjustments. Get in touch with us today to find out more.
Email: [email protected] Â
Phone: 01926 422292
