Company Cars, Vans and Bikes: Perk or Pricey Problem?

For many employees, having access to a company vehicle can feel like a major perk, but when you look closely at how these vehicles are taxed, the true cost can be a surprise. Whether it's a car, van, motorbike, or even fuel provided by the employer, each comes with its own tax implications. Let’s unpack the rules to help you decide what’s worthwhile and what could be a tax trap.

Company Cars: Low Emissions, Lower Tax

When an employee has use of a company car for personal journeys (even just a few trips), there’s a tax charge based on the car’s original list price and its CO₂ emissions. The cleaner the car, the lower the percentage applied. For example, if you're lucky enough to be driving a purely electric car or a plug-in hybrid that can go over 130 miles on battery alone, you’re only taxed at 2% of the list price. But the rate goes up fast with higher emissions, up to a maximum of 37%. Diesel vehicles are hit even harder with a 4% surcharge on top.

From an employer’s point of view, cars don’t qualify for the Annual Investment Allowance (AIA), but writing-down allowances are available. If the car emits under 50g/km of CO₂, you can use the main pool rate of 18%, otherwise, it drops to the special rate pool of 6%.

Vans: A Simpler Option, If It Qualifies

Vans are taxed more simply. Employees pay income tax on a fixed amount (£4,020 for 2025/26) regardless of make or model, and the employer can claim AIA. But, and this is crucial, not every “van” is truly a van in the eyes of HMRC.

If the vehicle has extra seats, like in a VW Kombi or a Vauxhall Vivaro with a second row of seats, the courts may consider it a car. The decisive factor is whether the vehicle’s primary design is for transporting goods. If it can comfortably carry people, even after modification, HMRC may decide it’s a car after all.

Double-Cab Pickups: The U-Turn Zone

Historically, double-cab pickups with a payload of more than one tonne were treated as vans. That was great news for tax purposes. However, after the 2020 Payne case, and a few changes in HMRC’s position, these vehicles will now be treated as cars if purchased or ordered after 6 April 2025. By April 2029, this rule will apply to all such vehicles. So, if you're planning to buy a double-cab pickup, timing could be everything.

Fuel: A Hidden Cost

If your employer pays for your private fuel, that’s another taxable benefit. The charge is based on a fixed figure, £28,200 in 2025/26, multiplied by the same percentage used for the car’s CO₂ emissions. For some drivers, this benefit can be as costly as the car itself. To avoid the fuel benefit charge, employees must reimburse the full cost of any private mileage.

For vans, fuel is simpler again: a flat £729 charge applies, regardless of how much fuel is actually used.

Motorbikes: Not Quite the Same Ride

Motorbikes are treated a bit differently. They're not cars or vans, so they’re taxed like any other company asset. If an employee has personal use of a motorbike, they’re taxed on 20% of its value each year. For employers, this often makes motorbikes a more tax-efficient option for occasional use.

The Bottom Line

Company vehicles are not always the tax-friendly perk they appear to be. While electric cars and straightforward vans still have their place, more polluting or multi-purpose vehicles can become very expensive, especially once you factor in fuel. If you’re an employer considering offering a vehicle, or an employee trying to understand what it might cost you, it pays to understand the rules in detail before signing on the dotted line.

How We Can Help

Navigating the tax implications of company vehicles can be complex, especially with ever-changing legislation and grey areas like crew-cab pickups or electric vehicle incentives. At Cannon Accountants, we specialise in helping businesses make informed, tax-efficient decisions about vehicle use, benefit-in-kind planning, and HMRC compliance. Whether you're considering offering company cars to staff, reviewing your fleet strategy, or simply want to understand your obligations better, our expert team is here to guide you. Get in touch for tailored advice that keeps you compliant while maximising tax savings.

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