The Chancellor’s Autumn Budget on 30 October created a number of headlines, especially around changes to inheritance tax and National Insurance Contributions.  However, the small print also contained several changes to the taxation of employee benefits which employers need to be aware of.

Company cars – hybrids to get more expensive

The Budget set the company car tax rates for tax years as far out as 2028/29 and 2029/30 - good news for employers looking at entering into new leasing arrangements. The bad news is that the rates are going up, and significantly so in the case of hybrids.

The appropriate percentages for all cars with emissions of 1 – 50g/km CO2 will rise to 18% in 2028-29 and 19% in 2029-30. This includes hybrids, which will no longer be taxed based on their electric range. As a result, the tax on hybrid company cars is set to jump significantly – with the appropriate percentage for the most efficient hybrids increasing from 5% in 2027/28 to 18% the following year.

The increases to other company cars are less marked. The appropriate percentages for zero emissions and electric vehicles will increase by 2% in each year, rising to 7% in 2028-29 and reaching 9% in 2029-30.  Appropriate percentages for all other vehicle bands will increase by 1% in 2028-29 and 2029-30, up to a maximum of 38% in 2028-29 and 39% in 2029-30.

Double cab pick-ups to be classed as cars

Another announcement which will lead to higher company car tax bills is that the Government will not, as previously announced, be introducing legislation to maintain the treatment of double cab pick-ups as goods vehicles.

Instead, HMRC will update its guidance to clarify that such vehicles are to be treated as cars for capital allowances and benefit in kind purposes from April 2025. Treatment for VAT purposes however remains unchanged.

This could see benefit in kind charges in respect of double cab pick-ups increase significantly.  There are however some grandfathering measures, with employers allowed to continue to treat vehicles as commercial vehicles where they are purchased, leased or ordered before 6 April 2025.  This treatment will then continue to apply until the earlier of disposal, lease expiry, or 5 April 2029.

Van benefits and car / van fuel benefits

The van benefit charge and car and fuel benefit charges are also going up in 2025/26, but only in line with inflation.

The new rates will be:

• Van benefit charge - £4,020
• Van fuel benefit charge - £769
• Car fuel benefit charge multiplier - £28,200

Mandatory payrolling coming from April 2026

Finally, it was confirmed at the Budget that the payrolling of benefits in kind will become mandatory, starting in phases from April 2026.

Payrolling benefits allows employers to deal with the tax on their employees’ benefits as part of their regular payroll activities by adding the cash equivalent of the benefit to their salary each pay period. Payrolling also allows employees to pay the tax on their benefits in real time, and can reduce the amount of paperwork at the end of the tax year.

To date, payrolling has been optional for employers.  However, from April 2026 all benefits in kind will have to be payrolled, except for employment related loans and accommodation. Payrolling these two benefits will be voluntary from April 2026, with the date for mandation yet to be confirmed.

More information is available in a policy paper published alongside the Budget documents.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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