The United Kingdom government has recently announced changes to company car tax rates that will take effect from April 2025. These changes are intended to encourage the use of more environmentally friendly vehicles and to reduce the overall environmental impact of company car fleets.
Table of Contents
Key Points:
- Changes to company car tax rates in the UK will take effect from April 2025, based on the CO2 emissions of the vehicle.
- Lower emissions will result in lower tax rates, with a maximum rate of 37% for vehicles with emissions of over 255 g/km.
- The list price surcharge for cars over £40,000 will increase from 2% to 4% and from 4% to 6%.
- These changes are expected to lead to an increase in demand for electric and hybrid vehicles.
- Companies should plan accordingly to ensure compliance and take advantage of the benefits offered by the new tax rates.
Changes to Company Car Tax Rates
According to financialaccountant.co.uk, the new tax rates will be based on the CO2 emissions of the vehicle, with lower emissions resulting in lower tax rates. Vehicles with CO2 emissions of 0-50 g/km will be subject to a 0% benefit-in-kind (BIK) tax rate, while vehicles with emissions of 51-75 g/km will be subject to a 1% BIK rate. As the emissions increase, the BIK rate will also increase, with a maximum rate of 37% for vehicles with emissions of over 255 g/km.
In addition to the changes to BIK rates, the government has also announced an increase in the list price for cars subject to the surcharge for cars with list prices over £40,000. This surcharge will increase from 2% to 4% for cars with list prices between £40,000 and £50,000 and from 4% to 6% for cars with list prices over £50,000.
Impact on the Company Car Market
These changes are expected to have a significant impact on the company car market in the United Kingdom, with many companies likely to switch to more environmentally friendly vehicles in order to take advantage of the lower tax rates. This, in turn, is expected to lead to an increase in demand for electric and hybrid vehicles.
The government’s decision to implement these changes is in line with its objective to reduce the carbon emissions of the transportation sector in order to combat climate change. This move will also encourage companies to invest in greener technology and will also help the UK to meet its target of net zero emissions by 2050.
Benefits of Switching to Electric Vehicles
To give an example of how this will play out in practice, a company that currently has a fleet of 50 petrol vehicles with an average CO2 emission of 150 g/km, would have to pay a BIK rate of 25% on each vehicle. If the company decided to switch to electric vehicles with CO2 emissions of 0g/km, the BIK rate would be 0%. This shows how a switch to electric vehicles could save the company a significant amount in tax.
Conclusion and Recommendations
In conclusion, the changes to company car tax rates in the United Kingdom, effective from April 2025, will have a significant impact on the company car market. It will encourage companies to switch to more environmentally friendly vehicles in order to take advantage of the lower tax rates and also help the UK to meet its target of net zero emissions by 2050. This will include electric vehicles or investing in other means of transport for employees.
This might include shared transport or even offering various schemes like the cycle to work scheme that already exists through many companies. Companies should stay informed and plan accordingly to ensure compliance and to take advantage of the benefits offered by the new tax rates.
