can trigger a Benefit in Kind (BIK) charge.
A BIK is any perk provided by your business that gives employees (including directors) a personal benefit.
For vehicles, this includes cars, vans, and pickups used for both personal and business journeys.
HMRC taxes this benefit, so it’s crucial to report it properly.
The BIK charge for company cars is calculated based on their list price and CO₂ emissions.
This makes low-emission and electric vehicles attractive options, as they generally attract lower BIK rates.
Upcoming changes to double cab pickups
From April 2025, double cab pickups (DCPUs) will be treated as cars for tax purposes, including capital allowances and Benefits in Kind (BIKs).
- Capital allowances: DCPUs will no longer benefit from 100 per cent relief available for vans. Instead, allowances will depend on emissions, with rates as low as 6 per cent per year.
- Benefits in Kind: DCPUs will attract higher BIK charges based on CO₂ emissions and list price. For example, a vehicle previously taxed as a van with a BIK tax cost of £1,887 (for a higher-rate taxpayer) could increase to over £10,000 under the new rules.
Vehicles purchased, leased, or ordered before 5 April 2025, with payment made before 1 October 2025, will be taxed under the current van rules until 5 April 2029 or until disposal or lease expiry.
The VAT rules remain unchanged, allowing VAT recovery for DCPUs with a payload exceeding one tonne. Planning now can help mitigate the impact of these changes.
Should you offer your employees company cars this year?
For low-emission and electric vehicles, the current tax environment remains favourable.
These cars attract significantly lower Benefits in Kind (BIK) charges, making them a cost-effective option for both employers and employees.
For example, fully electric vehicles currently benefit from a BIK rate of just 2 per cent, providing substantial savings compared to traditional petrol or diesel models.
Additionally, the Government offers enhanced capital allowances for electric and ultra-low emission vehicles, allowing businesses to deduct the full cost of these cars from profits before tax.
This can help offset the upfront expense of purchasing such vehicles.
However, vehicles with higher CO₂ emissions are less tax efficient.
The BIK rates for these cars can result in significant costs for employees, potentially outweighing the benefit.
For the business, the capital allowances on higher-emission cars are also much less generous, with annual rates as low as 6 per cent.
Additionally, from April 2025, double cab pickups (DCPUs) will face increased tax burdens, being treated as cars for tax purposes.
This change could make offering these vehicles considerably less appealing due to the higher BIK charges and reduced capital allowance rates.
So, whether offering company cars is worth it depends largely on the type of vehicle you choose to provide.
If you’re considering low-emission or electric vehicles, this year could be an excellent time to take advantage of the current tax reliefs, particularly if you purchase or lease the cars before any future changes in policy.
These vehicles are also appealing from a sustainability perspective, aligning with many companies’ environmental goals.
On the other hand, if you’re planning to provide vehicles with higher emissions or DCPUs, the increasing tax costs may outweigh the benefits.
In these cases, alternative perks or allowances for employees – such as mileage reimbursement for business travel in their own vehicles – might prove more cost-effective.
Ultimately, the decision should be guided by a thorough analysis of your workforce's needs, the financial implications for your business, and your long-term strategy.
A proactive approach to planning, including consulting with your tax adviser, will ensure that you make the most informed choice for your business and your employees.
