How company cars may be taxed from April 2025.

If a car is offered to an employee for their exclusive usage, an income tax cost occurs.
Double-cab pick-up trucks, a typical alternative to the car, have actually historically been dealt with as vans for both VAT and income tax functions, but this has actually now transformed.

he degree of income tax on the benefit-in-kind (BIK) is identified by the market price (minus up to ₤ 5,000 as a capital payment by the employee) of the car, which is after that subject to a percentage based upon the car’s CO2 emissions. Whilst a 4% surcharge is included in diesel cars not meeting RDE2 criterion, 37% is the optimum price applied to the sticker price, yet the price can be as low as 2% in 2024/25 for cars with zero emissions.

Crossbreed cars draw in reduced rates though they are additionally dependent upon the battery range; for those cars that can travel 130 miles or even more, the 2% price uses in 2024/25, 5% to those travelling between 70-129 miles, 8% for those taking a trip 40-69 miles, 12% for 30-39 miles and 14% for those which can travel less than 30 miles.

For petroleum engine cars with 50 g/km emissions or below, the 14% likewise uses, with the price rising by 1% in 5 g/km increments. These rates slowly boost annually, making cars more and more expensive. In 2025/26, the 2% price became 3%, with 16% being the price for fuel cars with 50 g/km or much less; by 2027/28, these rates will certainly be 5% and 18% specifically.

National Insurance is paid on the worth of the benefit– yet just by the employer via Class 1A National Insurance payments (NICs) at 15% (from April 2025).

There is no income tax or NICs bill if the car is a ‘pool car’, i.e., available to and used by multiple workers, with any kind of personal use being merely subordinate and the car normally being kept at the employer’s premises over night.

If fuel is attended to private journeys, a fixed benefit of ₤ 28,200 (2025/26) will certainly bring in the same percentage as that of the car and be credited income tax and NICs.
If the employee repays the employer for the personal component of fuel making use of the approved gas mileage rates completely, the benefit is squashed, yet it must be totally compensated for the benefit to be removed.

Anything that is not a car but has 4 wheels is normally a ‘goods vehicle’ (i.e., a van). If the vehicle is a van (where construction is key fit to for the transportation of products or burdens), there is a different collection of rules for the worth of the BIK; it is simply a flat price of ₤ 4,020 for 2025/26 with a level fuel benefit of ₤ 769. If there is a 2nd row of seats to carry passengers within a van, HMRC will likely regard it as a car, as the carriage of items or worries is just an usage, rather than the primary one, adhering to Payne & Ors [2020] EWCA Civ 889.

Along with a reduced taxable value, unlike cars, all vans bring in the annual investment allocation and major swimming pool rate of capital allowances and can be based on cases of input VAT.

HMRC have actually formerly concerned double-cab pick-up trucks (with 2 rows of seats, four independent doors and an open cargo location) as vans for BIK functions provided they satisfied the interpretation of vans under the VAT regulations (i.e., with a haul of 1 tonne+).

In the October 2024 Budget, it was revealed again (adhering to a similar short-lived announcement in February 2024) that the payload test will be terminated; pick-ups would certainly be dealt with as cars for BIK and capital allocation functions if bought or gotten on or after 6 April 2025.
Existing double-cab pick-ups (i.e., those acquired or bought prior to 6 April 2025), can retain their van condition up until 5 April 2029 or their disposal (if earlier). These adjustments will certainly not quit a double-cab pick-up from still being identified as a van for VAT functions.

Vans can attract a reduced BIK fee yet just if they have only one row of seats or are primarily utilized for lugging cargo; a second row of seats will likely imply it is a car; the same now applies to double-cab pick-ups possibly until 2029. Companies must ensure that any kind of vans they attend to their staff members are simply for the carriage of goods.