Budget 2024: company car tax up 2%
by Sara White, Editor, Business & Accountancy Daily
Company car tax will increase by 2% hitting a maximum rate of 39% while contrived company car ownership schemes will be outlawed
The rates for company car tax (CCT) for 2028-2029 onwards are being set in advance to ‘provide long term certainty for taxpayers and industry’ and will retain focus on encouraging the move to electric vehicles. The rates will come into effect from 6 April 2028.
The government is also tightening the rules to clamp down on contrived car ownership schemes for employees under new legislation by closing loopholes in employee car ownership schemes to prevent them from being used to avoid company car tax from 6 April 2026.
The company car tax rates for benefits in kind (BIKs) will continue to strongly incentivise the take-up of electric vehicles, while rates for hybrid vehicles will be increased to align more closely with rates for internal combustion engine (ICE) vehicles, to focus support on electric vehicles.
The appropriate percentages (APs) for zero emission and electric vehicles will increase by 2% per year in 2028-29 and 2029-30, rising to 9% in 2029-30. The current rate is 5%.
The rate for cars with emissions of 1 – 50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in 2028-29 and 19% in 2029-30. The rates were already going to rise over the period from the current rate of 14%.
All other vehicle bands will increase by 1% per year over the two-year period.
In addition, the maximum rate for vehicles over 160g CO2/km will increase by 1% per year to 38% for 2028-2029 and 39% for 2029-2030.
This means for vehicle bands with emissions of 51g CO2/km and over, company car tax will increase to a lowest rate of 19% up to 38% in 2028-29 and a range of 20% to 39% in 2029-30.
The van benefit charge and car and van fuel benefit charges will increase by CPI, currently 1.7%, from 6 April 2025.
In addition, the lowest first year rate (FYR) of capital allowances on zero emission cars will be frozen until 2029-30, and there will be an increase in FYRs for all other emission bands including hybrids and internal combustion engine vehicles in 2025-26. This will cost the Treasury an estimated £415m a year.
Measures to end contrived car ownership schemes will come into effect from 6 April 2026 and will raise £275m in 2026-27.
This arrangement means benefiting employees do not pay company car tax in contravention of the spirit of the law.
The government will publish draft legislation relating to loopholes in car ownership arrangements, whereby an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.
Current tax incentives to purchase electric cars through vehicle excise duty first year rates and the company car tax regimes will continue, while the 100% first year allowances for electric cars and charge points will be extended for a further year.
Standard vehicle excise duty (VED) rates for cars, vans and motorcycles, excluding first year rates for cars, will rise in line with RPI, currently 2.7%, from 1 April 2025.
The government has committed to phasing out new cars that rely solely on internal combustion engines by 2030. From 2035 all new cars and vans sold in the UK will be zero emission.
In terms of current purchases, new electric vans will be able to qualify for a plug-in vehicle grant, set to cost £120m next tax year to operate.
There will also be a £200m investment in 2025‑26 to accelerate EV charge point rollout, including funding to support local authorities to install on‑street charge points across England. This is needed urgently as there are only 70,000 public charge points.
