I will be the first to admit that the rules surrounding company cars confuse even the very best accountants.
With regular rule changes related to vehicle value and emissions, it is easy to get stuck – like the trickiest bits of the M25.
For many people, the opportunity of getting a company car may be the moment you feel like you have officially made it.
However, the UK’s Benefit in Kind (BiK) rules are here to keep your feet firmly on the ground. Yes, you can cruise around in something shiny. No, HMRC will not let you do it tax-free.
A company car counts as a BiK because it is, essentially, a perk. The tax you pay depends on three main ingredients:
- The car’s list price
- Its CO₂ emissions
- The fuel type.
Mix those together and you get your BiK rate, which can range from pleasantly low to eye-wateringly high.
Electric vehicles (EVs) still enjoy the friendliest rates, although they are no longer tax-free, which is why so many directors suddenly love a quiet, buzzy ride.
However, the 2025 Autumn Budget brought significant changes that will affect EV owners.
From April 2028, a mileage-based road tax will apply to electric and plug-in hybrid cars. This means drivers of battery electric vehicles (EVs) will pay around 3p per mile, and plug-in hybrid drivers will pay about 1.5p per mile.
For a typical driver doing around 8,500 miles per year, this could mean an additional £255-£260 per year.
While this is still much cheaper than petrol or diesel fuel costs, it marks a shift from taxing fuel to taxing road use.
The Government has also raised the threshold for the luxury EV tax, meaning more mid- and upper-spec EVs will avoid the surcharge and remain cost-competitive.
On top of this, the Electric Car Grant programme received a boost with an additional £1.3 billion of funding, extending the scheme to run until 2029/30.
Petrol and diesel cars sit higher on the scale, and hybrids fall somewhere in the middle, depending on how far they can travel on electric power alone.
I could go into the intricate and technical details, but the likelihood is that by the time I write them all down, they will have changed again.
For you as a business owner, the real magic is in the planning. Choose a low-emission car and both you and your company save money.
The company also pays Class 1A National Insurance contributions on the BiK value, so the choice affects your overall bottom line too.
If you want the perk without the punch, consider alternatives like company car allowances or mileage reimbursement for your team.
However, if a company car is still calling your name, pick wisely and crunch the numbers before signing anything.
If you want help working out the most tax-efficient option, our team can guide you through the rules so you can drive away with confidence, not confusion.