Employees with a company car available for their private use pay tax on the benefit. The amount that is charged to tax is a percentage of the list price of the car and any optional accessories, as adjusted to reflect any capital contributions made by the employee up to £5,000. The percentage, which is known as the ‘appropriate percentage’, depends on the level of the car’s CO2 emissions. A supplement applies to diesel cars that fail to meet emissions standards. The charge is adjusted to reflect certain periods during the tax year when the car was not available to the employee for their private use, and also any contributions made by the employee in respect of their private use of the car.
Changes applying from 2025/26
For the 2025/26 tax year, having a company car will become slightly more expensive. The appropriate percentages are increased by one percentage point up to the maximum charge of 37%. This means that an employee with an electric car will now be taxed on 3% of the list price of the car and optional accessories, compared to a charge of 2% for 2024/25. At the other end of the scale, the maximum charge of 37% will apply to cars with CO2 emissions of 155g/km and above.
This change will mean that an employee with a company car with a list price of £30,000 paying tax at the higher rate will pay £120 more in tax on their company car in 2025/26 than in 2024/25. Employers will also pay more in Class 1A National Insurance, both as a result of the increase in the appropriate percentage and also as a result of the increase in the Class 1A charge from 13.8% to 15%.
Looking ahead – 2026/27 and beyond
With the number of company car drivers choosing electric company cars increasing, the Government are reducing the tax breaks in order to maintain their revenue stream. For 2026/27, the appropriate percentages applying to cars with CO2 emissions of 74g/km or less are increased by one percentage point, while the appropriate percentages for cars with CO2 emissions of 75g/km and above are maintained at their 2025/26 level. It is a similar story for 2027/28 – the appropriate percentages for cars with CO2 emissions of 69g/km and below are increased by one percentage point, with the appropriate percentages for cars with CO2 emissions of 70g/km and above remaining unchanged.
There are further changes to come in both 2028/29 and 2029/30. In each of those years, the appropriate percentage for zero emission cars will increase by two percentage points. This means that for 2028/29, electric company car drivers will be taxed on 7% of the list price of their car and optional accessories. For 2029/30, this will increase to 9%.
From 2028/29, the amount charged to tax in respect of cars in the 1 to 50g/km band will no longer depend on the car’s electric range. Instead, the appropriate percentage for cars in this band will be set at 18% in 2028/29 and at 19% in 2029/30. For cars with the greatest electric range (more than 130 miles), this is a significant hike – from 5% in 2027/28 to 18% in 2028/29.
As far as other cars are concerned, the appropriate percentages will increase by one percentage point in both 2028/29 and in 2029/30. The maximum charge will also rise – to 38% in 2028/29 and to 39% in 2029/30.
Plan ahead
Drivers typically have a company car for three or four years. When changing their company car, employees should not only consider the current rates, but also those applying in future tax years. For electric and low emission cars in particular, significant tax hikes are on the horizon.
If you have any questions regarding your specific circumstances, please feel free to get in touch with the team at Accountwise, your local Wokingham Accountants, on 0118 9623702 or email AccountWise.
