Massive Company Car Tax Increases Explained

Major Benefit in Kind (BIK) tax increases and changes in VAT rules for pickups are coming on 6^th April 2025.

If you drive a company car, or use a double cab pickup for work, these changes will impact your tax bill.

This guide covers everything you need to know about upcoming BIK changes, how to avoid unnecessary tax on electric vehicles (EVs), and why double cab pickups will no longer be treated as vans for tax purposes.

(Read Time: Approx. 7 minutes)

Topics Discussed:

• BIK tax increases for company cars, including electric and hybrid vehicles.
• Double cab pickups reclassified – what this means for VAT and tax.

BIK Tax is Changing – Here’s What You Need to Know

From April 2025, the BIK tax rate for electric vehicles (EVs) will rise as part of the government’s phased approach to increasing tax on low-emission company cars.

However, BIK rates on petrol and diesel vehicles remain significantly higher, meaning EVs and plug-in hybrids remain the most tax-efficient choices.

There will be a year-on-year increase on the percentage you pay BIK on, which will increase until tax year 2029/2030.

These percentages are increasing at roughly 1% each year – and each level of different CO2 emissions have different levels of maximum cap.

You can find information regarding the increases at the Government’s website here – alternatively we have a summary below with example cars.

How is BIK Calculated?

BIK tax is based on four key factors:

• Income Tax Band – Whether you pay 20%, 40%, or 45% tax affects the total you owe.
• P11D Value – The car’s list price, including VAT and optional extras.
• CO₂ Emissions – The lower the emissions, the lower the BIK percentage.
• BIK Rate – This is set by the government based on emissions and fuel type.

Upcoming BIK Rates for Electric Vehicles

Example: Tesla Model 3 – 310-mile range, 0g/km CO₂ – Fully Electric Example

Example: BMW X5 PHEV – 61-64 mile range, 20-22g/km CO₂ – Petrol Hybrid

How to Reduce Your BIK Tax Bill

If you want to keep your BIK costs as low as possible, consider these strategies:

1. Choose a Lower-Emissions Car
   • The less CO₂ your car emits, the lower your tax rate.

2. Make a Personal Contribution
   • Contributing towards your company car reduces the taxable benefit.

3. Opt for Leasing Over Buying
   • Leasing lets you regularly upgrade to newer, greener cars with lower tax rates.

Tax Breakdown for Hybrids

• PHEVs typically sit in the 8-19% BIK range, depending on their electric range and CO₂ emissions.

• The longer the electric range, the lower the BIK rate.

• A BMW X5 (20g/km CO₂, 61-mile electric range) sits in the 8-19% range over the next decade.

How BIK is Calculated on a Hybrid

To calculate BIK, the P11D value is multiplied by the BIK rate. The resulting BIK value is then taxed according to the employee’s income tax band.

Example: BMW X5 PHEV (2025/26)

• P11D Value: £72,335
• BIK Rate: 6%
• BIK Value: £4,340
• Tax at 20%: £868 per year / £72 per month
• Tax at 40%: £1,736 per year / £145 per month

Example: Range Rover Sport PHEV (2025/26)

• P11D Value: £83,925
• BIK Rate: 5%
• BIK Value: £4,196
• Tax at 20%: £839 per year / £70 per month
• Tax at 40%: £1,678 per year / £140 per month

As the BIK rate rises over the years, the monthly tax cost will increase gradually.

However, even at 8% in 2027/28, the BMW X5 PHEV remains significantly more tax-efficient than a petrol or diesel equivalent.

By choosing a plug-in hybrid with a long electric range, you can keep your BIK tax lower while benefiting from the flexibility of a petrol engine for longer trips.

Why Hybrids Are a Smart Choice

• Lower BIK tax than petrol and diesel cars
• Better range flexibility than full EVs
• Still benefits from government incentives
• Suitable for businesses without workplace EV charging

For many companies, PHEVs strike the perfect balance—offering tax savings, environmental benefits, and practical range.

Electric Vehicle Road Tax Changes from 2025

From 1 April 2025, electric vehicles (EVs) will no longer be exempt from Vehicle Excise Duty (VED), meaning drivers will need to start paying road tax.

While EVs will still be cheaper to tax than petrol and diesel vehicles, this marks a major shift as the government looks to equalise tax rates across all vehicle types.

For most EV owners, VED will be £195 per year, while those driving premium electric models over £40k will pay as much as £620 annually due to the Expensive Car Supplement.

New zero-emission cars will initially pay the lowest first-year VED rate of £10, before moving to the standard rate from the second year onwards.

These changes also extend to zero-emission vans, which will be taxed at the same rate as petrol and diesel light goods vehicles (£335 per year), and zero-emission motorcycles, which will pay £25 annually.

Hybrid and alternative fuel vehicle rates will also be equalised with petrol and diesel cars, further reducing historic tax advantages.

While EVs remain the most tax-efficient choice for company cars, these VED updates mean businesses and individuals must factor in additional costs when choosing their next vehicle.

Double Cab Pickup Trucks: No Longer Taxed as Vans

HMRC’s New VAT and BIK Rules for Pickups

From April 2025, HMRC is reclassifying double cab pickup trucks as company cars.

Previously, these vehicles were taxed as vans, meaning businesses could reclaim 100% of VAT and benefit from a fixed-rate BIK tax.

What’s Changing?

• BIK Tax Will Increase:
  • Previously: Taxed as a van with a fixed £3,960 BIK charge (2024/25).
  • From April 2025: Taxed based on CO₂ emissions, like company cars.

• VAT Reclaim Restrictions:
  • Full VAT recovery will no longer be allowed unless the pickup is used exclusively for business.
  • If used personally, VAT can only be reclaimed for the business-use portion.

Example Scenario

If you were to purchase a Toyota Hilux “Invincible” before 5^th April, you’d be subject to Van BIK – this is a fixed rate across all vans:

After 5^th of April however, the classification of a Toyota Hilux “Invincible” has been changed to a car – which would subject it to BIK based on its fuel emissions and electric range:

This would be a significant BIK increase of almost £10,000 – and an increase on the tax of £150 per month for a lower rate taxpayer.

So how do you avoid such a significant increase on a pickup for your business?

Transitional Arrangements (2025 – 2029)

If you purchase, lease, or order a double cab pickup before 6^th April 2025, you can continue paying tax as if it were a van until 5^th April 2029.

Pre-ordered pickups that are reallocated to another employee after 6^th April 2025, will keep van tax status.

If the vehicle lease ends or it is sold, it will be reclassified as a company car.

What Should You Do?

• Order your pick-up before 6^th April 2025, to keep the van tax rate until 2029.

• If you need a vehicle for personal and business use, reconsider your options—a car may be more tax-efficient.

Summary

With BIK rates for EVs rising and double cab pickups being taxed as company cars, businesses and drivers must plan strategically to reduce tax liabilities.

For expert company car tax planning and VAT advice, get in touch with Tax Expert today.

Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.

Kind regards,

Ilyas Patel