Personal Use of Company Cars: Where Are We Currently?
Lets looks at the taxes of company vehicles.
When an employer’s car is offered for an employee’s personal use, there is an income tax charge on the employee– however that fee depends upon what the vehicle is.
Class 1A National Insurance contributions (NICs) are payable by the employer on the worth of the benefit on these vehicles.
1. Cars
Companies can not claim yearly financial investment allowance (AIA) on cars, but allowances are offered on the CO2 emissions– cars below 50g/km get the primary pool rate of 18%.
For the employee, the income tax cost depends on the car’s sale price (not the real acquisition rate) related to a portion (which boosts with the car’s emissions– and increases annually); simply electric cars and hybrids with the ability of 130+ miles under battery power attract a 2% price, with the percent increasing as the miles lower; combustion engine cars with CO2 emissions listed below 50g/km have a 14% price, which increases by 1% in increments of 5g/km.
Diesel motor draw in an extra 4% surcharge, though the maximum percentage on any vehicle is 37%.
2. Vans
Item vehicles (i.e., those whose building and construction ‘is mainly one for the transportation of items or concerns of any type of description’ per ITEPA 2003, s 115) go through income tax based upon a value (₤ 4,020 for 2025/26)– no list prices, no CO2 percentage. If a vehicle is not a goods vehicle and has more than 2 wheels, it will certainly be a car. As vans, they are not cars; they are eligible for the AIA for the employer.
If a ‘van’ has a row of seats behind the driver, it’s most likely to be a car. The Court of Appeal in Payne & Ors v HMRC [2020] EWCA Civ 889 held that Vauxhall Vivaros and VW Kombis were cars for income tax purposes, as a second row of seats could be fitted in each and hence they were capable of carrying people so the carriage of items was not a primary objective– ‘main’ definition ‘primarily’ not just ‘on a narrow balance’; the vehicle also needs to be considered in its changed form, as opposed to exactly how it came off the assembly line.
3. Double-cab pick-ups
Following the Payne situation, the standing of those pick-ups with 2 rows of seats was apparently cast doubt on. HMRC has traditionally pertained to such vehicles as vans, offered they fulfil the interpretation of a van for VAT functions (i.e., a one tonne+ haul). In February 2024, HMRC revealed that these pickups would certainly be classified as cars, according to the thinking in Payne– however a week later, they changed their mind.
Nonetheless, in the October 2024 Budget, the adjustment was reinstated for those vehicles ordered or bought after 6 April 2025, with April 2029 bringing global application for all vehicles.
4. Fuel
For the provision of private fuel for cars, the exact same portions putting on the car’s list price are related to a amount of ₤ 28,200 (for 2025/26)– so the provision can be as expensive as the car itself! If personal fuel is provided, only reimbursement completely for any type of exclusive use (based upon authorized fuel rates) will certainly nullify this fee.
The benefit of van fuel is a level ₤ 729 for 2025/26.
5. Motorcycles
Motorcycles are neither cars neither vans, and are therefore treated like any other piece of equipment.
Employees undergo the guidelines for using employer’s properties, i.e., they are taxed upon 20% of the property’s value.
Practical tip
The stipulation of a company car for personal purposes is expensive for both companies and staff members, specifically with expensive and more polluting cars; vans are definitely more affordable, yet to certify as items vehicles, they have to have no extra seats for guests past those sitting by the driver.
