Hidden amongst the more headline grabbing announcements at the Autumn Budget were some upcoming changes to the tax rules for company cars that businesses need to be aware of before leasing or buying new vehicles.

As set out in our ‘back to basics’ guide earlier this year, when an employer provides their employee with a vehicle which they are allowed to use privately (such as a company car) this creates a benefit in kind. Income tax is payable by the employee on this benefit in kind, and the employer will have Class 1A National Insurance Contributions (NICs) to pay.

The amount subject to tax and NICs is based on the list price of the car, multiplied by the ‘appropriate percentage’.  These appropriate percentages are set out in legislation and vary based on the car’s CO2 emissions.

What’s changing?

Following the Budget, we now know the appropriate percentages for company cars for as far out as 2029/30.

The percentages for zero emissions (i.e. pure electric) cars are set to rise steadily by 1% a year in 2025/26 through 2027/28, but then by 2% a year to reach 7% in 2028/29 and 9% in 2029/30.

Percentages for most other cars will rise by a more modest 1% per year, up to a maximum of 38% in 2028/29 and 39% in 2029/30.

However, there will be a significant increase for hybrid cars. For tax years up to and including 2027/28, the appropriate percentage for hybrids with CO2 emissions of 1 – 50g/km is based on their electric range.  Broadly, the further the car goes on a single charge alone, the lower the appropriate percentage.

This all changes from 2028/29, when all cars with emissions of 1 – 50 g/km will have an appropriate percentage of 18% (rising to 19% in 2029/30) regardless of their electric range.  For the most efficient hybrids, this could result in an overnight increase in the appropriate percentage from 5% to 18% with effect from 6 April 2028.

Double cab pick ups

Another upcoming change surrounds the tax treatment of double cab pickups.

To date, where the vehicle’s payload exceeds one tonne, they have been classed as vans rather than cars for benefit in kind purposes, resulting in much lower tax and NICs bills for many businesses.

However, it was confirmed at the Budget that, from 6 April 2025, double cab pickups with a payload of one tonne or more will be treated as cars for capital allowances and benefit in kind purposes.  If you buy, lease or order a double cab pickup before 6 April 2025, you can however continue to treat it as a van until the earlier of disposal, lease expiry or 5 April 2029.

Final thoughts

To avoid unpleasant employment tax surprises down the line, businesses need to keep these upcoming changes in mind when picking new company cars.

In particular, those considering hybrids might be tempted to look to electric cars instead. Although the benefit in kind charges are going up, they will still generally result in a lower tax bill than hybrid, petrol and diesel equivalents.

For those considering double cab pickups, the best advice is to put their foot down and get orders in before April next year when the rules change.

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.  

We regularly publish articles on a range of tax and wider topical issues which affect employers. If you wish to subscribe to our monthly Employer Focus e-newsletter, please contact us.