If you’re an employer considering offering a company car or van for private use, or an employee weighing up the benefits. Understanding tax and National Insurance (NI) implications is important. The rules around this area are detailed and ever-changing, but getting it right can save both time and money.

Here’s our overview of the key considerations when it comes to company vehicles and benefits in kind.

Company Cars and Private Use

When a company car is made available for private use, it counts as a benefit in kind. That means it’s subject to income tax for the employee and Class 1A National Insurance for the employer.

The amount of tax and NI owed depends on the car’s list price (not the purchase price) and its CO2 emissions.

• Diesel cars that don’t meet the RDE2 emissions standard receive a 4% surcharge.
• All cars are subject to benefit-in-kind rates with a maximum of 37%.
• Fully electric vehicles can have a rate as low as 2%.
• For hybrids, the benefit rate depends on their electric-only driving range – the longer the range, the lower the tax. Here’s a snapshot for 2024–25:

• 130+ miles: 2%
• 70–129 miles: 5%
• 40–69 miles: 8%
• 30–39 miles: 12%
• Under 30 miles: 14%

Rates will gradually rise each year, making it essential to factor in the long-term cost.

Reducing the Taxable Benefit

Some deductions can reduce the value of the benefit in kind:

• Employee contributions of up to £5,000 towards the car’s cost
• Reimbursements for private use
• Periods of 30 days or more when the car is unavailable

Employers pay Class 1A National Insurance on the benefit-in-kind value – this has been increased to 15% from April 2025.

Fuel for Private Use

Providing fuel for private journeys can significantly increase the taxable benefit. In 2025-26, the fixed fuel benefit value is £28,200, and it attracts the same benefit in kind percentage as the car.

This means providing fuel can be as costly as the car itself.

However, if the employee fully reimburses the cost of private fuel using HMRC’s Approved Mileage Rates, the benefit can be removed entirely.

What Counts as a ‘Pool Car’?

A company car isn’t taxed if it’s a pool car – shared among staff, used only incidentally for private journeys, and usually stored at the workplace. HMRC has strict conditions, so documentation is key.

Is a Company Car Still Worth It?

In many cases, it may be more tax-efficient for employees to use their vehicle for work travel, claiming 45p per mile for the first 10,000 business miles, and 25p thereafter. This method can often be simpler, particularly for roles with high business mileage.

Company Vans and Pick-Ups

Vans are treated differently from cars. If a van is provided for private use, the benefit-in-kind charge is a flat rate of £4,020 for 2025–26, with a fuel benefit of £769.

However, some vehicles fall into a grey area. For example, double-cab pick-ups with extra seating may be classed as cars for tax purposes.

As of 6 April 2025, double-cab pick-ups will be subject to van rules only if they meet the “goods vehicle” test. Those bought before this date retain their van status until April 2029 or until sold, whichever comes first.

Motorbikes

Motorbikes are treated as assets rather than company vehicles. The benefit is calculated as 20% of the market value per year.

VAT Considerations

Businesses can reclaim VAT on fuel, but private use must be accounted for. VAT fuel scale charges are based on the car’s CO2 emissions and are updated annually. The 2025 figures are down 5.7% compared to the previous year.

Capital Allowances

• Cars with CO2 emissions of 50g/km or less: qualify for the 18% writing-down allowance
• Cars with emissions above 50g/km: only qualify for 6%
• Cars do not qualify for the annual investment allowance (AIA) or full expensing
• Electric cars can qualify for 100% first-year allowances until April 2026
• Employers can also claim 100% allowances on the cost of installing EV charging stations, and reimbursing employees for charging is a tax-free benefit

Choosing between a company car, van, or personal vehicle isn’t just about convenience, it’s about understanding the full tax picture. With benefit-in-kind rates set to rise year-on-year, we recommend reviewing your options carefully.

At Whittaker & Co, we’re here to make sense of the rules and help you choose the most tax-efficient route for your circumstances. Whether you’re running a fleet for your security firm, managing a team of contractors, or considering the switch to electric, we’ll guide you through every step.

Need help reviewing your company vehicle setup?
Get in touch with our team today.

For further information – Expenses and benefits: company cars and fuel: Overview – GOV.UK

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