Increase in company car benefit in kind rates down the road

Published by George Cannon on 27 March 2025

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In the Autumn Budget, HM Revenue & Customs (HMRC) provided further details on the increase in company car and fuel benefits in kind up to the 2029/2030 tax year.

Now that we have clarity on those proposed increases over the next five years. now is the time to consider your next company car?

How are company car benefits in kind calculated?

Put simply, in order to calculate the taxable benefit in kind (BIK) for company cars provided to employees for private use (including commuting), you must use the list price of the vehicle plus any additional accessories and multiply the total by a percentage which is set by HMRC.

This percentage will vary depending on the CO2 emissions and fuel type of the vehicle provided, with the lower the CO2 emissions the lower the applicable percentage. Deductions may be available for capital contributions or contributions towards private use by the employee. The BIK will be pro-rated if the vehicle is not available for the entire tax year. Diesel vehicles are subject to a 4% surcharge if they are not RDE2 compliant.

If fuel is also provided by the employer for private use, then an additional fuel BIK will arise. The fuel BIK is calculated by multiplying a figure set by HMRC by the same percentage as outlined above. For the 2025/26 tax year the figure set by HMRC is £28,200.

What is the current position?

Currently, fully electric vehicles benefit from the lowest BIK rate of 3% for the 2025/26 tax year. Hybrid vehicles also benefit from lower BIK rates depending on their electric only range, with vehicles with an electric-only range in excess of 130 miles also subject to the lowest 3% BIK rate. This rate increases as the electric-only range of the vehicle decreases.

Vehicles with CO2 emissions of 50 – 54g/km are subject to a 16% BIK rate. This percentage increases by 1% for every five additional g/km of CO2 that the vehicle emits up to a limit of 37% for vehicles with CO2 emissions in excess of 155g/km.

How are the rates changing?

You will note from the below table that the BIK rates are steadily increasing from the 2025/26 tax year onwards. However, following the Autumn Budget the largest increases begin from the 2028/29 tax year.

Vehicle CO2 (g/km)	Electric only range (miles)	24/25 (%)	25/26 (%)	26/27 (%)	27/28 (%)	28/29 (%)	29/30 (%)
0	N/A	2	3	4	5	7	9
1-50	>130	2	3	4	5	18	19
1-50	70-129	5	6	7	8	18	19
1-50	40-69	8	9	10	11	18	19
1-50	30-39	12	13	14	15	18	19
1-50	<30	14	15	16	17	18	19
51-54	N/A	15	16	17	18	19	20
55-59	N/A	16	17	18	19	20	21
60-64	N/A	17	18	19	20	21	22
65-69	N/A	18	19	20	21	22	23
70-74	N/A	19	20	21	21	22	23
75-79	N/A	20	21	21	21	22	23
80-84	N/A	21	22	22	22	23	24
85-89	N/A	22	23	23	23	24	25
90-94	N/A	23	24	24	24	25	26
95-99	N/A	24	25	25	25	26	27
100-104	N/A	25	26	26	26	27	28
105-109	N/A	26	27	27	27	28	29
110-114	N/A	27	28	28	28	29	30
115-119	N/A	28	29	29	29	30	31
120-124	N/A	29	30	30	30	31	32
125-129	N/A	30	31	31	31	32	33
130-134	N/A	31	32	32	32	33	34
135-139	N/A	32	33	33	33	34	35
140-144	N/A	33	34	34	34	35	36
145-149	N/A	34	35	35	35	36	37
150-154	N/A	35	36	36	36	37	38
155-159	N/A	36	37	37	37	38	39
160+	N/A	37	37	37	37	38	39

Electric and Hybrid vehicles hit hardest?

After years of encouraging employers to provide employees with electric and hybrid vehicles through the favourable BIK rates, it appears that the tax savings offered by these vehicles has now been targeted by the new government.

Fully electric cars will be subject to a 7% BIK rate in 2028/29 and 9% in 2029/30, a large increase from the 2% BIK rate for the 2024/25 tax year.

However, it is hybrid vehicles that may be hit hardest by the latest rate changes. Looking at a hybrid vehicle with an electric-only range in excess of 130 miles, this vehicle was subject to a 2% BIK rate for the 2024/25 tax year, increasing by 17% by 2029/30 to 19%.

How will these changes affect me?

Here is an example of the tax implications for a fully electric vehicle with a list price of £50,000 provided to a higher rate tax payer for the entire tax year:

	2024/25 (£)	2029/30 (£)	Difference (£)
Car BIK	1,000	4,500	3,500
Tax on employee @ 40%	400	1,800	1,400
Employer’s Class 1A NIC @15%	150	675	525
Total additional costs			1,925

Here is a further example, this time outlining the tax implications for a hybrid vehicle with an electric only range of more than 130 miles and a list price of £50,000 provided to a higher rate taxpayer for the entire tax year:

	2024/25 (£)	2029/30 (£)	Difference (£)
Car BIK	1,000	9,500	8,500
Tax on employee @ 40%	400	3,800	3,400
Employer’s Class 1A NIC @15%	150	1,425	1,275
Total additional costs			4,675

Fuel BIKs should also be considered when ascertaining the potential tax consequences of these changes for yourself or your employees. The rules on fuel BIKs can be complex depending on the fuel type provided to the employee therefore they have not been considered in any detail in this article.

What should I be considering?

Given the upcoming increases in company car BIKs, it is important that you plan ahead and fully understand the tax consequences of any vehicles provided to you or your employees, both based on the current position and the future tax implications of the vehicle.

These changes should be kept in mind when selecting any new company cars, and although electric vehicle BIKs are increasing, they will usually still result in lower tax liabilities than other models. Furthermore, it could be worthwhile exploring whether a car allowance rather than a car BIK would now be more suitable for you and your business.

If you would like any further advice about this, please do get in touch with a member of our team.

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