In response to the Chancellor’s Budget yesterday, Matthew Walters, UK Head of Consultancy Services and Customer Value at Ayvens, has issued the following statement:
Company car tax
Announcing company car tax bands to 2030 was perhaps the most significant measure for fleets, who previously only had visibility until April 2028. The Autumn Statement confirms incentives for plug-in hybrid and electric vehicles will remain until at least the end of the decade – though they will also face the steepest tax rises during that period.
Tax incentives for electric vehicles have been an important driver of change since they were introduced in 2020. Almost a third (29%) of company car drivers – 222,000 taxpayers – have a vehicle with zero tailpipe emissions, according to the latest HMRC data, while 70% of BVRLA members’ business contract hire deliveries and almost all salary sacrifice volume was electric in Q2 2024.
From April 2028, zero-emission vehicles will get a 2%-point annual rise in company car tax, reaching 7% in 2028/29 and 2029/30. Although that represents a four-fold tax increase over five years, it still offers an incentive for fleets and drivers compared to petrol, diesel and hybrid vehicles.
Rates for all other vehicles will continue to rise by 1%-point each year from April 2028, including the highest 37% band – and there are significant changes for plug-in hybrids at that point. All vehicles with CO2 emissions between 1-50g/km will move into a single 18% tax band, scrapping the current system which incentivises plug-in hybrids according to their electric range.
That change results in three times higher tax bill – from 5% to 18% – for models with a range in excess of 130 miles. Although there are no vehicles that meet those criteria today, plenty of new plug-in hybrids already offer a range of between 70-129 miles and fall into the band above. This could significantly impact demand for those vehicles among company car drivers.
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By GlobalData
The Chancellor also addressed two loopholes in the current company car tax system. Future legislation will end “contrived” employee car ownership schemes from April 2026, while double-cab pickup trucks will be treated as passenger cars and taxed based on their CO2 emissions from next April. Businesses ordering pickups beforehand will continue to be taxed at a flat rate for commercial vehicles.
Vehicle Excise Duty
Plans to equalise vehicle excise duty (VED, or ‘road tax’) across petrol, diesel, hybrid and electric vehicles announced two years ago. We’re pleased to see the Chancellor has listened to industry feedback about how this new system affects electric vehicles, confirming incentives at the point of registration and plans to adjust the expensive car supplement too.
From 1 April 2025, all cars registered since April 2017 will pay the same £195 rate of VED, regardless of powertrain, which removes the £10 discount for hybrids and means electric vehicles will be taxed for the first time. All vehicles registered on or after that date will also attract the £425 Expensive Car Supplement on top of their first five annual renewals if they have a list price of £40,000 or more.
The Autumn Budget confirmed new zero-emission cars will attract a £10 first-year rate when they are registered, and this will be frozen until 2029/30, while an adjustment to the Expensive Car Supplement’s price threshold is under consideration for a future fiscal event.
Electric vehicle prices are continuing to fall, however, five of 2023’s ten most popular electric vehicles (according to the SMMT) have a starting price over £40,000, including the Tesla Model Y – which was the best-seller overall. Without those adjustments, some drivers would face three times higher VED renewals for an EV than they would in an equivalent petrol, diesel or hybrid car.
Hybrids are facing even steeper rises. Plug-in hybrids, particularly, are often already affected by the expensive car supplement and the Autumn Statement has set out significant increases from next year. First-year rates for cars emitting 1-50g/km CO2 will rise from £0 to £110, while vehicles between 51-75g/km will increase from £20 to £130. First-year rates for all other cars will double.
Vehicle excise duty for electric cars has always been inevitable, but the government has widely maintained incentives to help steer drivers towards the cleanest models. However, we would have welcomed some adjustment to rates for light-commercial vehicles – especially considering it has now been six years since the Government’s consultation about future tax treatment for vans.
From next April, electric LCVs will be taxed the same as their petrol and diesel counterparts – something we’d urge the Chancellor to review given that fleets still face challenges with range, payload, towing capacity and operating costs. It’s telling that electric vans’ 5% share of year-to-date registrations is lagging behind ZEV Mandate’s 10% targets.
Fuel Duty
We were pleasantly surprised to see the Chancellor not only retain the 5p/litre fuel duty cut for an additional 12 months, but also extend the ongoing freeze in inflation-linked rises which has been in place since 2011. The alternative, a predicted 7p/litre rise in pump prices, would have been challenging during a period where household and business budgets continue to be squeezed.
However, we would have welcomed some measures to bring the cost of public charging under control. According to the latest government data, fuel prices are at their lowest level for three years and almost identical to when duty was frozen in March 2011. With a recent surge in energy prices, drivers plugging into a rapid chargepoint are paying as much for that electricity as they would in a petrol car averaging 30mpg.
Calls to bring the 20% VAT rate for public charging in line with the 5% paid for plugging in at home have not been listened to. This makes it much harder for drivers and fleets who depend on public charging to make a business case to go electric.
Employer NICs
Reforms to employer National Insurance Contributions (NICs) weren’t directly aimed at fleets, but it affects company car and salary sacrifice schemes.
Employer NICs will rise from 13.8% to 15.0% from April 2025, while the income threshold will be reduced from £9,100 to £5,000 per year. The rate change also applies to Class 1A rates for providing workplace benefits – such as a company car.
The changes mean employers’ annual Class 1A NIC bills will rise by 8.7% next year, adding £144 for £40,000 hybrid company car, or £16 for an electric vehicle at the same price, while potentially making salary sacrifice schemes more attractive.
Salary sacrifice enables drivers to lease vehicles through their employer and pay for them with their pre-tax income. As long as that vehicle emits 75g/km CO2 or less (which is true of most plug-in hybrid or electric cars), income tax and NICs are calculated the remaining salary and the taxable value of the car.
With company car tax bands as low as 2% for electric vehicles, this already typically offers a reduced NIC bill for employers, and that advantage will grow as those contributions cover a larger share of their salary. It’s bolstering the business case for what’s already one of the most affordable ways for drivers to opt into a new electric car – and business uptake is growing. The Chancellor should be wary of anything that slows that trend.
