Company cars are one of the most common and also most expensive benefits in kind for an employer and employee.

Broadly company car benefits in kind are calculated by using a percentage of the car’s list price when new. The percentage used will depend on the CO2 emissions and hence vehicles with lower CO2 emissions generally result in a lower benefits in kind.

There has been a move in recent years towards leasing or buying electric vehicles to provide to employees as company cars. This trend has arisen due to a number of reasons including businesses being mindful of the impact on climate change and to help them meet their ESG targets, plus early concerns about range and charging availability has largely reduced due to an improvement in the EV network infrastructure and with improvements made by manufacturers to the range of EVs.

However another key reason is also due to the Government allowing a lower rate of benefit to be applied for electric cars compared to other petrol, diesel and hybrid cars. For instance for the 2024/25 tax year a fully electric vehicle will incur a benefit in kind which is 2% of the car’s list price. Whilst a petrol car which has CO2 emissions of 100 g/km will have a benefit in kind of 25% of the list price. You can immediately see the advantage of having a fully electric company car.

During the Autumn Budget in October, Rachel Reeves announced that the new Government were going to honour the benefit in kind increases announced by the Conservatives when they were in power. In general the percentages are going up each year for many of the bands including EVs which are increasing by 1% per annum reaching 5% in 2028. The Government went further and have also announced that they are going to increase the percentages for EVs by 2% per year thereafter resulting in a rate of 9% benefit in 2030.

The announcements may seem a long way off and the rates seem a lot higher than in previous years however, with the Government under pressure to raise taxes and the popularisation of EVs in recent years meaning that EVs are likely here to stay, it means that the Government feels they can make these percentage increases knowing that it should not impact too significantly on the EV market. Furthermore the announcement is in line with the Government’s aim of creating long term certainty for UK businesses and taxpayers.

Furthermore whilst the percentages are gradually increasing for EVs in particular, they still remain significantly lower than the rates for petrol or diesel cars which can be as high as 36%. It is also significantly lower than hybrid cars which have low zero emission mileage, which now have similar percentages to fully petrol vehicles!

Both businesses and employees should be aware of the increases especially where they are committing to a 4 or 5 year lease terms. It’s also worth noting that the benefit in kind is based on the car’s list price when new so if a company car is 4 years old the benefit in kind will be no different to if the car was brand new. If anything the vehicle is likely going to come with a higher benefit in kind due to the increase in rates!

Historically it was possible for an employer to provide electric company cars to all employees via a salary sacrifice arrangement where part of the company car costs were funded by the tax savings. These savings were made because by sacrificing some of their gross pay the employee’s income tax and national insurance payments would reduce. These schemes may still be beneficial however as the percentages increase the amounts saved may not be as lucrative to employers or employees.

Double cab pick ups (DCPUs)

Historically there have been special rules surrounding the tax treatment of pick up trucks which had a hard top (often known as “double cab pick ups”).

From a benefit in kind perspective, the current rules state that if a DCPU has a payload of 1 tonne (1,000 kg) or more it is considered a commercial vehicle and hence it is treated as a “van” with the employee receiving a van benefit in kind, which is much lower than if the DCPU is treated like a car.  Back in February 2024, the then Government announced that the rules would be changing so that all DCPUs would be treated as cars from 1 July 2024 onwards however, within the space of a week they had U-turned and withdrew the plans citing feedback from farming and motoring industries that the change would have a big impact on the industries.

However fast forward 8 months and at the Budget in October, the new Government announced that were going to introduce the changes that the previous Government had failed to follow through on and hence DCPUs with payloads of more than 1 tonne would be treated as cars for the benefit in kind rules from 6 April 2025. This means that employees who are provided with these vehicles could see the amount of tax they pay go up drastically. For instance a van benefit in kind typical results in a benefit of roughly £4,500 and since a DCPU typically has a large engine and in general higher CO2 emissions, a BIK using the car rules could potentially result in taxable benefits of say £25,000. The impact is not only on employees too as the employers will also suffer national insurance which is increasing to 15% of the benefit from 6 April 2025.

Furthermore since 2002 the capital allowances which businesses can claim in relation to the DCPUs was also based on the payload of pick up truck. Broadly if it had a payload of more than 1 tonne the business could claim capital allowances as though it were a commercial vehicle and therefore in recent years the Annual Investment Allowance resulting in full relief in the year of acquisition. The announcements at the Budget in October suggest that tax relief on a DCPU after April 2025 will be dictated as though the vehicle was an ordinary car and hence the capital allowances will depend on the CO2 emissions. Given that the Annual Investment Allowance and Full Expensing cannot be claimed on cars and many DCPUs will have high CO2 emissions it is likely that the many DCPUs will qualify for 6% writing down allowances via the special rate pool. We may see a change in the market as a result with DCPUs manufacturers offering electric versions of them but this remains to be seen.

Pick up trucks are widely used in certain sectors such as the farming and construction industry and whilst single cab pick ups will still qualify as commercial vehicles even after April 2025, many businesses will be disappointed that the rules for DCPUs have changed.

There will be some relief for employers who have purchased, leased or ordered DCPUs prior to 6 April 2025 as they will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029. Therefore for any businesses thinking of investing in a double cab pick up would be best advised to order theirs before 6 April 2025.

For more information or advice on the above changes or if you would like support on the taxation of company cars in general please contact us.