Company Vehicles and Tax: What Employers and Employees Need to Know for 2025/26
Providing a company vehicle can be a valuable perk for employees — but it also comes with tax implications for both the business and the individual. Whether it’s a car, van, pickup, or motorbike, understanding how these are taxed helps avoid unnecessary costs and ensures compliance with HMRC rules.
In this post, we break down the key tax rules around company vehicles for 2025/26, including updates from the October 2024 Budget.
1. Company Cars – Emissions and List Price Matter
If an employer provides a car for personal use, the employee will face an income tax charge, and the employer must pay Class 1A National Insurance on the benefit.
Key factors that determine the benefit:
- List price of the car (not purchase price)
- CO₂ emissions
- Fuel type (electric, hybrid, diesel, petrol)
- Electric range (for hybrid/electric models)
Taxable benefit calculation:
A percentage (based on emissions and fuel type) is applied to the list price of the car. That figure becomes the taxable benefit.
- Electric cars and long-range hybrids (130+ miles): 2%
- Low emissions (<50g/km): Start at 14% and rise with emissions
- Diesel cars: Additional 4% surcharge unless RDE2 compliant
- Maximum charge: 37%
Employers cannot claim Annual Investment Allowance (AIA) on cars but can claim writing down allowances, which are more generous for low-emission vehicles.
2. Vans – Simpler Rules, Flat-Rate Benefit
Vans — defined legally as vehicles primarily built to carry goods — are taxed differently:
- Flat-rate taxable benefit: £4,020 (2025/26)
- Flat-rate fuel benefit: £729 (2025/26)
Unlike cars, there’s no sliding scale or link to emissions or list price. For employers, vans qualify for the AIA, making them more tax-efficient.
However, not all vans are treated as vans.
A warning on ‘van-like’ vehicles:
If the vehicle has a second row of seats (e.g. Vauxhall Vivaro, VW Kombi), HMRC may classify it as a car if its primary design is for transporting people — not goods. This was confirmed in the Payne & Ors v HMRC (2020) court case.
Always assess how the van is configured at the time of use, not just how it was originally built.
3. Double-Cab Pickups – Changing Rules Ahead
Double-cab pickups with two rows of seats have long been treated as vans for tax purposes — if they have a payload of over 1 tonne.
In early 2024, HMRC said these would be reclassified as cars, then reversed the decision. However, the October 2024 Budget confirmed:
- Vehicles purchased after 6 April 2025: Treated as cars
- From April 2029: All double-cab pickups treated as cars, regardless of purchase date
This will affect both employee tax charges and employer NICs. It also removes AIA eligibility, making them less attractive for businesses.
4. Fuel Benefits – Costly for Company Cars
Providing private fuel for company vehicles brings a separate taxable benefit.
For cars:
- Benefit is based on the same percentage used for the car
- Applied to a fixed fuel value of £28,200 (2025/26)
- Can be as expensive as the vehicle benefit itself!
This charge can only be avoided if the employee reimburses all private fuel used, using HMRC’s approved mileage rates.
For vans:
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A much simpler flat rate of £729 applies for private fuel.
5. Motorbikes – Treated as Assets
Motorbikes don’t qualify as cars or vans and are treated like other business assets.
- Employees are taxed on 20% of the bike’s value
- No special car/fuel benefit rules apply
This can offer a simpler and often lower-cost option, especially for occasional or low-emission use.
Summary – What Employers Should Do
Classify your vehicles correctly — Misclassification could result in unexpected tax charges.
Review fuel policies — Fuel benefits for cars are costly unless full reimbursement is in place.
Check upcoming changes for double-cab pickups — Plan ahead if you rely on them for fleet use.
Make use of AIA for vans — They remain tax-efficient, especially for small businesses.
Review employee agreements — Ensure employees understand the tax impact of personal use.
Need Advice on Company Vehicles?
At Merranti Accounting, we help employers and directors manage the tax implications of company vehicles, whether you’re running a fleet or providing a perk to a single employee.
Contact us for tailored advice on vehicle benefits, NICs, and efficient company structuring.
