Measure

Changes affecting company cars

The measure

In the Autumn Budget 2024, the government has announced a raft of changes that will affect the provision of company vehicles. These include:

Increases to rates of Company Car Tax (CCT) that will apply for the 2028/29 and 2029/30 tax years (rates up to 5 April 2028 were previously known).
The treatment of Double Cab Pickup (DCPU) vehicles with a payload of 1 tonne or more will change with these vehicles to be treated as company cars (previously these could have been treated as vans for income tax purposes).
An announcement that draft legislation will be published to close loopholes and end the use of contrived car ownership schemes where employees do not pay CCT.
The government will change the first year Vehicle Excise Duty (VED) rates for new cars to strengthen the incentive to purchase zero emission and electric cars.
The car fuel benefit multiplier and the van and van fuel benefit charges will be uprated by the Consumer Prices Index (CPI).

Who will be affected?

Broadly speaking, the changes announced will affect all employers operating a company car, van and car ownership schemes. The most noticeable impact will be for employers who are affected by more than one of the changes, such as those who utilise DCPUs on their fleet, or those operating car ownership arrangements.

The changes announced will also affect employees ordering company vehicles or participating in a car ownership scheme.

When will the measure come into effect?

The timetable for the changes announced is as follows:

Changes to the Appropriate Percentage (AP) used to calculate CCT will rise:
- - For vehicles with CO2 emissions of 0 g/km by 2 percentage points per year, in the 2028/29 and 2029/30 tax years (rising from 5% in 2027/28 to 7% in 2028/29 and 9% in 2029/30).
  - For vehicles with CO2 emissions of 1-50 g/km to 18% and 19%, in the 2028/29 and 2029/30 tax years respectively (in the 2027/28 tax year, the AP for these vehicles will be between 5% and 17% depending on the electric range of the car).
  - For all other vehicles, by 1 percentage point per year for the 2028/29 and 2029/30 tax years.
  - The maximum AP will rise from 27% in 2027/28 to 38% and 39% in the 2028/29 and 2029/30 tax years respectively.
The treatment of DCPUs will change for vehicles ordered on or after 6 April 2025 for income tax purposes. Transitional benefit in kind arrangements will apply for employers who have purchased, leased or ordered a DCPU before 6 April 2025. The transitional arrangements will use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
The draft legislation to close the loopholes for contrived car ownership schemes is yet to be published, but it was confirmed the changes will take effect from 6 April 2026.
The changes to the first-year rates of VED will apply for new cars registered on or after 1 April 2025.
The following new rates will come into effect from 6 April 2025:
- - The car fuel benefit multiplier will rise to £28,200 (currently £27,800).
  - The van benefit charge will rise to £4,020 (currently £3,960).
  - The van fuel benefit charge will rise to £769 (currently £757).

Our view

The announcement of two more years of CCT rates is likely to be welcomed by employers and employees. With rates now known up to 6 April 2030, and company cars typically being kept for c. four years, employers and employees will now be able to make decisions with a greater degree of certainty on future costs.

The new CCT rates announced for zero emission vehicles are likely to offer a continued financial incentive for employers and employees supporting the move to fully electric vehicles. However, the cost of CCT for Plug-in Hybrid Electric Vehicles (PHEVs) with emissions of 1-50g/km is set to rise sharply from 6 April 2028, reducing the attractiveness of these vehicles. As an example, the AP for a PHEV with an electric range of 70-129 miles would more than double, rising from 8% in 2027/28 to 18% in the 2028/29 tax year.

For the first time in more than decade, the upper limit for CCT is set to rise which will increase employer and employee costs for cars at the upper end of the CO2 emissions scale. The upper limit is set to rise in future to reach 39% for the 2029/30 tax year (the upper limit last changed on 6 April 2015, rising from 35% to 37%).

The change in treatment for DCPUs is likely to have a significant financial impact for employers and employees using these vehicles. As an example, in the 2025/26 tax year the taxable benefit for a DCPU provided with a private fuel benefit would have been £4,789. However, with the change in treatment the taxable benefit value could rise by over 400% to more £20,000 (this assumes a DCPU with a list price of £27,500 and CO2 emissions over 170 g/km).

It is likely that the draft legislation intended to close car ownership scheme loopholes will be eagerly awaited by employers and employees with this type of arrangement. A key question to answer when the legislation is published is whether it is intended to capture all car ownership arrangements and bring them into the scope of company car tax legislation, or simply to tighten the rules to close the loopholes used by the ‘contrived’ schemes in operation.

When combined, the changes announced in the Budget affecting car schemes are likely to have a significant financial impact on affected employers and employees. The government forecast that the changes made will generate an extra £2.7billion of revenue over a five-year period (6 April 2025 to 5 March 2030).