Starting on 6 April 2025, significant changes to company car tax came into effect, impacting how Benefit-in-Kind (BIK) tax is calculated for company vehicles. These changes were outlined in the Autumn Budget 2024 and have already begun to influence the taxation of different types of vehicles.
Switching to electric or low-emission vehicles is now a more appealing option than ever, thanks to the revised tax rates.
Key Changes to Company Car Tax in 2025
BIK Rate Adjustments
- Electric Vehicles (EVs): The BIK rate for EVs has risen from 2% to 3% for the 2025/26 tax year. This rate will continue to increase by 1% each year until it reaches 5% in 2027/28.
- Ultra-Low Emission Vehicles (ULEVs): For vehicles that emit less than 75g/km CO₂, BIK rates will rise by 1% annually, capping at 21% by 2027/28.
- Plug-in Hybrid Electric Vehicles (PHEVs): Due to changes in emissions testing, many PHEVs have seen a shift to higher BIK brackets. For example, the BMW X5 xDrive50e’s BIK rate increased from 8% to 24%, which raises the taxable benefit from £4,400 to £13,200.
- Petrol and Diesel Vehicles: High-emission petrol and diesel cars face higher BIK rates. For instance, the Range Rover Sport P400 MHEV (199g/km CO₂) has moved from a 37% BIK rate to a 39% rate by 2029/30, increasing the taxable benefit from £40,700 to £42,900.
Reclassification of Double-Cab Pick-Ups
Double-cab pick-up trucks, such as the Ford Ranger and Toyota Hilux, were previously taxed at a flat rate of £3,960. However, these vehicles are now classified as company cars, meaning their tax rate will depend on their CO₂ emissions. Many of these vehicles now fall into the highest 37% BIK bracket. As a result, higher-rate taxpayers (40%) could face annual tax bills exceeding £7,000.
Updates to Vehicle Excise Duty (VED)
- Standard Rate: Starting in April 2025, all vehicles, including EVs, will be subject to a standard VED rate of £195 annually.
- First-Year Rate for EVs: New electric vehicles registered after 1 April 2025 will be subject to a first-year rate of £10, followed by the standard £195 annual rate.
- Expensive Car Supplement: For cars valued over £40,000, an additional supplement of £425 will apply annually from the second to the sixth year of the vehicle’s life.
Why Were These Changes Introduced?
The government introduced these changes as part of its strategy to meet net zero emissions goals and encourage the use of greener vehicles. By offering financial incentives for cleaner transportation, the aim is to reduce emissions from company fleets and promote a more sustainable future.
