If you or your employees drive a company car, there are some important tax changes on the horizon.
From April 2025, the benefit-in-kind (BIK) charges on company cars are increasing—and more changes are already planned through to 2029/30. If you’re thinking about choosing or renewing a company car, now’s the time to plan ahead.
Let’s break it all down in plain English.
How Company Car Tax Works
When an employee has a company car available for private use, it’s treated as a taxable benefit.
The tax charge is calculated using:
- The list price of the car (plus optional accessories)
- Any capital contribution (up to £5,000) made by the employee
- An ‘appropriate percentage’ based on the car’s CO₂ emissions
- Adjustments for periods of unavailability or employee contributions toward private use
Diesel cars that don’t meet specific emissions standards attract an additional supplement.
What’s Changing from April 2025?
From 6 April 2025, the appropriate percentage for all company cars will increase by one percentage point, up to the maximum of 37%.
Here’s what that means:
- Electric vehicles will be taxed at 3% of the list price (up from 2% in 2024/25)
- High-emission cars (155g/km CO₂ or more) will stay at the 37% maximum
- Employers will also pay more Class 1A National Insurance, due to both the higher BIK charge and the NIC rate increase (from 13.8% to 15%)
Example:
An employee driving a £30,000 company car and paying higher rate tax will see their annual tax bill rise by around £120 in 2025/26 compared to 2024/25.
Future Tax Increases for Low and Zero Emission Cars
The government has made it clear—while electric and low-emission cars remain tax-efficient, the incentives are shrinking each year.
2026/27
- Cars with CO₂ emissions up to 74g/km: BIK rate rises by 1%
- Cars with CO₂ emissions of 75g/km or more: No change
2027/28
- Cars with CO₂ emissions up to 69g/km: BIK rate rises by 1%
- Others stay the same
2028/29
- Electric cars: BIK rate jumps from 5% to 7%
- 1–50g/km cars: All taxed at 18% (regardless of electric range)
- Other cars: BIK rates rise by 1%, max rate rises to 38%
2029/30
- Electric cars: BIK rises again to 9%
- 1–50g/km cars: BIK rises to 19%
- Other cars: Another 1% increase, max rate reaches 39%
Big takeaway:
Electric and ultra-low emission cars will still offer savings—but the gap is closing fast.
Thinking of Changing Your Company Car?
Most company cars are kept for three to four years, so it’s crucial to look beyond the current tax year.
With steep increases in the pipeline—especially for electric cars with long ranges—what seems tax-efficient today might cost more down the road.
When choosing your next car, consider:
- Future BIK rates
- Total tax over the full term
- Class 1A NIC costs to the business
Want to Make the Smart Choice on Company Cars?
Whether you’re looking at switching to electric, comparing models, or reviewing your employee benefits strategy, it pays to get expert advice before making a decision.
At Jon Davies Accountants, we help business owners and directors make tax-smart choices—from cars and payroll to pensions and profits.
Get in touch with Jon or the team today to discuss your company car plans and how to keep your tax bill in check.
Contact us now and drive your decisions with confidence.
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Any questions?
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