The announcements from the Budget
In this Budget review, we look at the main changes announced in this week’s Autumn Budget and how they might impact you, as employers offering car benefits to your employees. Structuring employee car benefits compliantly and efficiently has never been more important, and our expert team are on hand to support you and adapt to any changes that you may face.
As expected in the Autumn Budget, the Chancellor, Rachel Reeves, outlined a series of measures to increase tax and National Insurance Contributions (NICs). These include big increases in company car tax, Vehicle Excise Duty, and more prominently employer NICs – all of which raise the cost of providing company cars and intensify the burden on you as employers.
Let’s take a look in more detail.
Car ownership schemes
We start our review in the detail of the Budget, which set out that draft legislation will be issued in respect of ‘contrived’ car ownership schemes, such as those arrangements where there are no repayment terms and negligible interest.
HMRC has been quick to point out that ‘legitimate’ car ownership schemes aren’t impacted ahead of the new rules being introduced in April 2026, and that it will collaborate with stakeholders over the next 12 months to ensure that this is the case.
Car ownership scheme arrangements utilising unregulated loans and beneficial loans with low or zero interest rates are likely to be subject to the new legislation.
However, all CBS Employee Car Ownership Schemes (ECOS) arrangements are legitimate, using FCA-regulated loans with fixed repayment terms and interest rates above the official rate that HMRC uses to determine if a loan is a Benefit-in-Kind (BiK).
Once finalised, the new legislation will give a clear framework for employers who find car ownership schemes to be the best car benefit solution.
Company car tax
In previous Budgets, the Government had set out company car tax rates through to tax year 2027/28. The Autumn Budget 2024 set out the rates through to tax year 2029/30, including significant increases for all cars.
- For zero-emission and electric cars, the rate will increase as planned until 2027/28 and then rise by 2% each year, reaching 9% in 2029/30. This will represent an increase of more than 300% from today’s rates.
- For hybrid cars (1-50g/km CO2), the rate will rise to 18% in 2028/29 and 19% in 2029/30. The sliding scale based on electric range will end in 2028/29. So, a hybrid car with 1-50g/km CO2 will see its rate rise from 5% in 2027/28 to 18% in 2028/29, again more than tripling.
- All other cars will see a 1% increase per year in 2028/29 and 2029/30, with the maximum CCT rate reaching 39% in 2029/30.
These increases bring into focus the punitive nature of company car tax. Over a four-year period, employees might end up paying company car tax on 156% of the car’s list price (P11D value). This is different from most other benefits, where tax is based on the actual cost, such as depreciation and maintenance.
The significant changes in hybrid company car tax rates from 2028/29 onwards also provide a strong indication as to where the tax on zero emission company cars will increase to post 2030. Once the ban on petrol and diesel vehicles comes into place tax incentives will no longer be required to encourage electric vehicle uptake and we expect company car tax rates to match those of hybrid vehicles.
Double cab pick-up vehicles
After much confusion and Government U-turns over the last few months, from 6 April 2025, double cab pick-up trucks with a payload of one tonne or more will be taxed as cars for company car tax and Corporation Tax.
There will be transition rules until April 6, 2029 for those who buy, lease, or order a double cab pick-up before April 2025. These vehicles will continue to be taxed under the current rules until the lease ends or April 2029, whichever comes first.
This is likely to be a significant blow to many industries where the vehicle is a necessity for carrying out the role and would otherwise not be chosen as a private use benefit.
Vehicle Excise Duty (VED)
VED first year rates
The Government is increasing VED first year rates for all types of cars from 1 April 2025.
- Zero emission cars will now pay a first-year rate of £10 until 2029-30.
- Rates for cars emitting 1-50 g/km of CO2, typically hybrid vehicles, will increase from £10 to £110 for 2025-26.
- Rates for cars emitting 51-75 g/km of CO2, again typically hybrid vehicles, will increase from £30 to £130 for 2025-26.
- Rates for all other cars emitting 76g/km of CO2 and above will double from their current level for 2025-26.
The impact of these changes is that manufacturers, motor dealers and customers are likely to focus on maximising ICE vehicle deliveries in the first quarter of 2025, and in the new plate change month of March in particular.
Subsequent year VED
Subsequent year VED will increase in line with the RPI from 1 April 2025.
VED expensive car supplement
Cars with a list price, (P11D value) of more than £40,000 currently pay an extra £410 VED from the second year (alongside the standard subsequent year VED) for five years.
This applies to all cars including, from April 2025, newly registered zero emission cars. To incentivise the take up of electric cars which generally have higher P11D values than comparable ICE vehicles, the Government has said it will consider raising the threshold for zero emission cars but only at a future fiscal event. Whether this will be included in the Spring Statement of 2025 remains to be seen.
Employer NICs
Starting from 6 April 2025, the employer National Insurance Contributions (NICs) rate will go up from 13.8% to 15%. Additionally, the threshold at which employers begin paying NICs for each employee will drop from £9,100 per year to £5,000 per year.
In addition to payroll cost increasing, this means that employer Class 1A NICs on company car and fuel benefits will increase to the new rate.
Salary sacrifice
The Budget didn’t mention salary sacrifice car schemes, so they’ll keep running as they do now. However, although the employer NICs rate increase in April 2025 offers a short term saving, it’s important for employers and employees to know that hybrid cars delivered from April 2025 will face much higher company car tax by the end of their lease, especially those contracted on a four-year term.
Fuel Duty
It was announced that Fuel Duty will be frozen at its current level for the next tax year, providing a welcome boost to motorists after so many other tax rises.
Private fuel benefit
Although there was no reference to private fuel benefit in the Budget, it’s expected that scale charge tax amounts will increase in line with inflation from April 2025.
Capital Allowances: Green First Year Allowances
The Government confirmed that it is extending the 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle charge points for a further year through to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.
However, there was little positive news in this respect for lessors and lessees as leased cars still don’t qualify for FYAs. The Government would only say that this will be reviewed ‘when fiscal condition allow’.
Supporting employers
It’s clear that the tax increases announced in the Budget will put a heavy burden on businesses, with employers facing significant additional costs. We recognises that employee car benefits are essential, not just optional perks. They help businesses deliver outstanding goods and services, operate smoothly, and keep the best talent.
In these challenging times, we’re committed to supporting businesses by providing value adding and rewarding car benefits. Our team of experts is ready to help you navigate these changes, so if you have any questions or concerns, get in touch.