Company car tax clarity provides “long-term certainty”

Months of campaigning for clarity on future company car tax rates, and an increase in the mileage reimbursement rate for electric vehicles (EVs), has paid dividends for fleets.

The Government says benefit-in-kind (BIK) tax will increase by just one percentage point year-on-year for three years from April 2025 for EVs, while the advisory electricity rate (AER) will increase from 5p per mile (ppm) to 8ppm from December 1. 

The industry has lobbied Whitehall for the past few years, with the Association of Fleet Professionals (AFP) and the British Vehicle Rental and Leasing Association (BVRLA) spearheading campaigns.

Paul Hollick, chair of the AFP, told Fleet News he was “absolutely stoked” about the changes. He said: “We've been lobbying for ages on both points, and we’re pleased that HMRC and Treasury have listened to what we said.

“It gives some certainty to the market and recognises how fleets have faced a lot of delays with vehicles.”

BVRLA chief executive Gerry Keaney labelled the decision on BIK a “key milestone” in the UK’s transition to zero-emission motoring and cemented the momentum gathered in recent years.

“Our sector is the driving force behind getting cleaner, greener vehicles on UK roads, with the tax regime a critical lever in making it happen,” he said. 

“Our #SeeTheBenefit campaign had clear asks around keeping rates low and giving drivers confidence in future rates.

“The Government has listened. We have engaged with MPs, the Treasury and the Chancellor directly, with our voice bolstered by input and letters from thousands of BVRLA members and industry professionals. 

“BIK rates remaining fair, alongside the clarity provided by years of foresight, gives us a clear path on the road to net zero.” 

LONG-TERM CERTAINTY

Chancellor Jeremy Hunt said he recognised that setting rates for company car tax until April 2028 would provide “long-term certainty” for the market and continue to incentivise the take-up of EVs.

The appropriate percentages for electric and ultra-low emission cars emitting less than 75g/km will increase by one percentage point in 2025/26; the same again in 2026/27; and a further one percentage point in 2027-28, up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.

Rates for all other vehicles bands will be increased by one percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

The one percentage point year-on-year rise will be worth an additional £95 million to the Treasury in 2025/26, £155m in 2026/27 and £245m in 2027/28.

Keaney and Hollick welcomed the increase in the mile reimbursement rate for EVs and the decision to review it quarterly, in line with advisory fuel rates (AFRs).

Hollick said: “An AER rate of 8ppm is much closer to real world costs for the vast majority of electric vehicle drivers and will allow much fairer reimbursement – although it remains too low for vans and drivers who don’t have home charging.”

Only one-in-eight drivers (12.2%) felt that the current 5ppm reimbursement rate reflected the true cost of charging an EV, according to a recent Fleet News poll.  

Almost three-quarters (73.5%) of respondents said it should be 10ppm or more, while one-in-five (20.2%) thought it should be three times the current rate and that drivers should receive 15ppm to cover their charging costs.   

Thomas McLennan, head of policy and public affairs at the BVRLA, said: “We will carry on engaging with HMRC to push for the continued evolution of the AER.”

EVS SUBJECT TO VED

There was some bad news for total cost of ownership (TCO) calculations, however, with the Chancellor making EVs subject to vehicle excise duty (VED) for the first time from April 2025.

Hollick labelled the move “disappointing” but not unexpected. “It does feel a little as though the Government has given with one hand and taken some back with the other,” he said.

New zero-emission cars registered on or after April 1, 2025, will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions oneto-50g/km) – currently £10 a year.

From the second year of registration onwards, they will move to the standard rate, currently £165 a year. Zero-emission cars first registered between April 1, 2017, and March 31, 2025, will also pay the standard rate.

The Expensive Car Supplement exemption for EVs is also due to end in 2025. New zero emission cars registered on or after April 1, 2025, will therefore be liable for the £355 supplement, says Treasury. It currently applies to cars with a list price exceeding £40,000 for a five-year period.

Zero- and low-emission cars first registered between March 1, 2001, and March 30, 2017, in band A will move to the band B rate, currently £20 a year.

Zero-emission vans will move to the rate for petrol and diesel light goods vehicles, currently £290 a year for most vans.

Zero-emission motorcycles and tricycles will move to the rate for the smallest engine size, currently £22 a year.

Rates for alternative fuel vehicles and hybrids will also be equalised.

PLUGGING TAX SHORTFALL

Fuel duty and VED combined raise about £35 billion for Government coffers but, according to the Office for Budget Responsibility (OBR) the growing share of electric cars threatened to cut motoring tax revenues by £2.1bn by 2026-27.

In introducing VED on EVs, the Government estimates it will be worth an additional £515m in 2025/26, £985m in 2026/27 and almost £1.6bn in 2027/28. 

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: “We recognise that all vehicle owners should pay their fair share of tax, however, the measures announced mean electric car and van buyers – and current owners – will face a significant uplift in VED.

“The sting in the tail is the VED supplement which will unduly penalise these new, more expensive vehicle technologies.

“The introduction of taxes should support road transport decarbonisation and the delivery of net zero, rather than threaten both the new and second-hand EV markets.”

Matthew Walters, head of consultancy services and customer value at LeasePlan UK, was concerned how the high price of EVs could see them subjected to the higher tariff.

He said: “Given EVs tend to have higher sticker prices than fossil-fuelled counterparts, this threatens to be a hefty new tax for electric motorists.”

Lex Autolease head of fleet consultancy Ashley Barnett also warned against creating further barriers to adoption. “The introduction of VED on EVs won’t immediately stall future uptake, but it does highlight the need for a more coherent and joined-up conversation between Government and industry bodies to simplify what is becoming an overly complicated vehicle taxation system,” he said.

Possible proposals around a road pricing regime to replace VED and fuel duty, failed to materialise, despite being mooted, so a long-term solution appears to have been kicked into the long grass again.

For more on the tax changes, read analysis from tax expert Harvey Perkins, director at HRUX.