Changes to fleet leasing and company car tax are being implemented in the UK in 2025/26, meaning fleet managers might need to rethink the vehicles they choose. Updates to BIK, VED and new vehicle classifications mean there are new factors to consider.
In this guide, we’ll highlight some of the changes businesses need to know about, explain common myths, and outline how tax changes may affect business cash flow.
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Fleet tax and company car tax changes in the UK
If your company uses fleet cars to run efficiently, there are a few company car tax changes you’ll need to be aware of to ensure you’re optimising your business’s finances. From changes to EV tax to BIK rates and increasing National Insurance costs, we’ll go through the changes below to help you make informed decisions in the coming years.
BIK rates, allowances, and implications for 2026/26
BIK rates: For company cars, Benefit-in-Kind rates will gradually rise over the next few years. Zero-emission EVs will rise from 2% to 3% in 2025/26. In the coming years, BIK is planned to rise to 4% in 2026/27, 5% in 2027/28 and so on.
For plug-in hybrid cars (PHEVs), BIK is calculated from electric range and CO2 emissions. The cost is likely to increase by 1% per year. By 2028/29, all PHEVs will face an 18% BIK rate.
Vehicle Excise Duty (VED): From April 2025, EVs will lose their exemption from paying road tax. For the first year, the VED tax is £10, then from year 2 onward, the rate is £195/year, which is the same as petrol/diesel cars. For EVs over the £40,000 mark, the Expensive Car Supplement applies.
EVs are still favourable compared to high-emission ICE cars, but the tax-free benefit no longer applies.
Double Cab Pickups: These vehicles will be treated as cars rather than vans, for tax purposes. BIK for these vehicles will now be based on list price + CO2 emissions. Capital allowance tax relief is also reduced.
For many companies, this undermines the tax efficiency of pick-ups, so it needs to be considered.
Capital allowances: Full expensing for qualifying assets still exists, but only for certain vehicles. For companies with profits over £250,000, Corporation Tax remains 25%.
National Insurance: Employer National Insurance rises from 13.8% to 15% from April 2025. Because of this, the attractiveness of Salary Sacrifice may be reduced.
Fleet management tips to minimise costs
With the above in mind, how can fleet managers adapt to ensure costs are kept to a minimum? Here are a few tips for managing costs:
- Prioritise EVs with moderate list prices
Since EVs lose their VED exemption, and the expensive-car supplement now applies above £40K, it’s best to consider fleet vehicles below that threshold. This way, you can avoid the £390 per year supplement, and by favouring efficient, lower-priced EVs, you can take advantage of lower BIK rates (still only 3%) in 25/26.
- Reassess PHEVs based on real electric range
PHEV tax is tied to CO2 emissions and electric range. To minimise tax on plug-in hybrid vehicles, look for PHEVs with the longest electric range possible, and remove older, shorter-range PHEVs from the fleet to avoid high BIK costs.
- Avoid double-cab pickups
In April 2025, double-cab pickups lost van status and are now taxed the same way as cars. To minimise additional costs, reassess whether you need this type of vehicle. BIK costs will have jumped significantly; list price and CO2 emissions also result in high Total Cost of Ownership.
- Consider Total Cost of Ownership
Think about the Total Cost of Ownership when choosing fleet vehicles. Choosing fleet cars and vans solely based on monthly lease cost could result in you paying more than you’d like. Update TOC calculations to include EV/PHEV tax shifts, the rise of employer NI, updated VED bands, and charging/fuel costs for a more accurate representation of costs.
- Leverage Salary Sacrifice
Salary Sacrifice schemes are still beneficial for employees and employers, even with the NI increase – but there are still considerations to think about. These schemes become less cost-effective for higher-priced EVs or PHEVs. Employers should also look for vehicles best suited to low BIK/low list price.
- Optimise fleet composition: Smaller engines, better specs
If your fleet is made up of petrol and diesel cars, as well as hybrid vehicles, look for lower CO2 models to avoid the steep first-year VED. Look into downsizing engines, and use telematics and fleet management tools to ensure you’re not continuing to run underused vehicles.
Fleet leasing tax: Common misconceptions
When it comes to fleet management, knowing the common myths and misconceptions can help you avoid any issues down the line. Below, we’ll take a look at a few myths that come with the new fleet leasing tax regulations so you can make informed decisions:
“Leasing is always fully tax-deductible”
- Deductibility depends on emissions, business use and the type of lease.
Unfortunately, not all lease costs can be written off with the new fleet leasing tax 2025. Only the finance/lease rental portion is deductible, not including maintenance or extras. For any vehicle that operates within your fleet that emits over 50g/km CO2, 50% of VAT can be reclaimed.
“Electric cars are tax-free”
- While this used to be true, this is no longer the case.
EVs still benefit when it comes to low BIK, but it’s no longer zero. From April 2025, EVs pay VED, putting them on a level playing field with ICE and hybrid cars. If you have higher-cost EVs in your fleet, the expensive-car supplement can also push costs up.
“BIK doesn’t apply to lease cars”
If an employee has private use of a company car, whether it’s leased or owned, BIK applies in the same way. Whichever way you drive, BIK is based on CO2, electric range, and list price.
“Salary sacrifice is the cheapest option”
- Salary sacrifice is cost-effective for EVs, but this might not always be the case.
There are a few reasons why Salary Sacrifice might actually be more expensive, for example, for vehicles that exceed £40K, National Insurance increases, PHEVs now fall into higher tax brackets, and employees on lower income levels may also breach minimum wage compliance.
“Low monthly rental means low tax cost”
- While low monthly rental costs might seem advantageous, often companies fail to factor in the Total Cost of Ownership.
Even with a low monthly rental cost, cars with higher CO2 emissions result in higher VED and BIK tax, higher fuel costs and lower residual value. Don’t forget to look at the TOC to determine just how much a company car will cost.
How leasing decisions impact company budgets
Company car tax changes could have an impact on your company’s budget if you count on a fleet of vehicles to work efficiently. Let’s take a closer look at this below:
Cash flow: Leasing spreads costs over time rather than having to find a lump sum to pay for a vehicle upfront. Choosing the right lease vehicle means lower initial costs, predictable monthly payments, and helps to maintain liquidity.
Tax Costs: The lease car you choose has a direct impact on BIK, National Insurance, VED and VAT. Choosing the wrong vehicle can increase annual tax spend, so choose responsibly.
Maintenance and operational costs: Opting into a lease deal with maintenance increases rental cost, but makes budgeting easier. Opting out of a maintenance contract risks unpredictability. Consider which is best for your business.
Flexibility vs long-term commitments: A long lease term means lower monthly payments, but reduces the flexibility that is needed within a changing business. Shorter lease terms add flexibility but increase monthly costs. It’s essential to find the right balance.
Company car tax changes have created a shift in BIK, VED, and employer National Insurance, all of which will have an impact on the Total Cost of Ownership and business leasing decisions. Being aware of common misconceptions and how company car leasing can have an impact on your business’s finances allows you to make decisions that benefit your company’s fleet and budget.