Chris Thorpe considers how company cars may be taxed from April 2025.
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If a car is made available to an employee for their private use, an income tax charge arises.
Double-cab pick-up trucks, a common alternative to the car, have historically been treated as vans for both VAT and income tax purposes, but this has now changed.
Benefit-in-kind income tax charge
The level of income tax on the benefit-in-kind (BIK) is determined by the list price (minus up to £5,000 as a capital contribution by the employee) of the car, which is then subject to a percentage based on the car’s CO2 emissions. Whilst a 4% surcharge is added to diesel cars not meeting RDE2 standard, 37% is the maximum rate applied to the list price, but the rate can be as low as 2% in 2024/25 for cars with zero emissions.
Hybrid cars attract lower rates though they are also dependent upon the battery range; for those cars that can travel 130 miles or more, the 2% rate applies in 2024/25, 5% to those travelling between 70-129 miles, 8% for those travelling 40-69 miles, 12% for 30-39 miles and 14% for those which can travel less than 30 miles.
For petrol engine cars with 50 g/km emissions or below, the 14% also applies, with the rate going up by 1% in 5 g/km increments. These rates gradually increase each year, making cars more and more expensive. In 2025/26, the 2% rate became 3%, with 16% being the rate for petrol cars with 50 g/km or less; by 2027/28, these rates will be 5% and 18% respectively.
National Insurance is paid on the value of the benefit – but only by the employer via Class 1A National Insurance contributions (NICs) at 15% (from April 2025).
There is no income tax or NICs charge if the car is a ‘pool car’, i.e., available to and used by multiple employees, with any private use being merely incidental and the car usually being kept at the employer’s premises overnight.
Private fuel
If fuel is provided for private journeys, a fixed benefit of £28,200 (2025/26) will attract the same percentage as that of the car and be charged to income tax and NICs.
If the employee reimburses the employer for the private element of fuel using the approved mileage rates in full, the benefit is nullified, but it must be fully reimbursed for the benefit to be removed.
Vans and other vehicles
Anything that is not a car but has four wheels is usually a ‘goods vehicle’ (i.e., a van). If the vehicle is a van (where construction is primary suited to for the conveyance of goods or burdens), there is a separate set of rules for the value of the BIK; it is simply a flat rate of £4,020 for 2025/26 with a flat fuel benefit of £769. If there is a second row of seats to carry passengers within a van, HMRC will likely regard it as a car, as the carriage of goods or burdens is merely a use, rather than the primary one, following Payne & Ors [2020] EWCA Civ 889.
In addition to a lower taxable value, unlike cars, all vans attract the annual investment allowance and main pool rate of capital allowances and can be subject to claims of input VAT.
Double-cab pick-ups
HMRC have previously regarded double-cab pick-up trucks (with two rows of seats, four independent doors and an open cargo area) as vans for BIK purposes provided they met the definition of vans under the VAT rules (i.e., with a payload of 1 tonne+).
In the October 2024 Budget, it was announced again (following a similar short-lived announcement in February 2024) that the payload test will be discontinued; pick-ups would be treated as cars for BIK and capital allowance purposes if purchased or ordered on or after 6 April 2025.
Existing double-cab pick-ups (i.e., those purchased or ordered before 6 April 2025), can retain their van status until 5 April 2029 or their disposal (if earlier). These changes will not stop a double-cab pick-up from still being classified as a van for VAT purposes.
Practical tip
Vans can attract a lower BIK charge but only if they have only one row of seats or are primarily used for carrying cargo; a second row of seats will likely mean it is a car; the same now applies to double-cab pick-ups potentially until 2029. Employers should ensure that any vans they provide for their employees are purely for the carriage of goods.
