Year End Tax Planning: Cars, Fuel & Salary Sacrifice
As we fast approach the end of the financial year, it is important to review your financial and taxation position. In this latest article in our year end tax planning series, we take a look at cars, fuel and salary sacrifice.
The taxable benefit of a company car is calculated by multiplying the list price, and any delivery fees and additions, by a percentage (up to a maximum of 37%) based on the car’s CO2 emission levels.
If your employer also provides you with free fuel for your company car, the tax charge is based on the car’s CO2 emissions. This will be the same percentage used to calculate the taxable car benefit and is applied to a fixed amount of £28,200 from 2025/26, making the tax cost £4,174 if you are a higher rate taxpayer driving a company car attracting the maximum percentage.
If you are provided with a company van and use it for private journeys, the basic benefit on which tax is charged is £4,020 for 2025/26, plus £ 769 if free fuel is provided for private journeys.
If you use your own car for business purposes, you can be paid a tax-free mileage allowance provided it does not exceed 45p per mile for up to 10,000 business miles and 25p per mile for each additional mile over 10,000, with an extra 5p per mile for each work passenger who travels with you.
If you use your own bicycle or motorcycle for business journeys, you can receive a tax-free mileage allowance of 20p per mile (bicycles) and 24p per mile (motorcycles).
Future tax increases
The percentages for zero emission and electric vehicles will increase by 1 percentage point for 2025/26 to 2027/28 and by 2 percentage points for 2028/29 and 2029/30.
The percentages for all cars with emissions of 1 to 50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in tax year 2028/29 and 19% in tax year 2029/30.
The percentages for all other vehicle bands will increase by 1 percentage point per year in tax years 2028/29 and 2029/30. This will be to a maximum appropriate percentage of 38% for tax year 2028/29 and 39% for tax year 2029/30.
Treatment of double cab pick-up vehicles
The government will treat double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes.
From 1 April 2025 for corporation tax, and 6 April 2025 for income tax, DCPUs will be treated as cars for the purposes of capital allowances, benefits in kind and some deductions from business profits.
The existing capital allowances treatment will apply to those who purchase DCPUs before April 2025. Transitional benefit in kind arrangements will apply for employers that have purchased, leased, or ordered a DCPU before 6 April 2025. They will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
Salary Sacrifice
Electric cars
Electric cars are still viewed as company cars if provided by the employer through a salary sacrifice scheme. There remains a benefit-in-kind on the employee, but the income tax and national insurance contributions savings with salary sacrifice outweigh the tax payable on a benefit-in-kind. The benefit-in-kind on electric cars increases to 3% for 2025/26.
With the income tax and NIC savings, the net cost should be less in comparison to a personal hire contract with no salary sacrifice.
As the employer, you lease the car on behalf of your employee and the employee pays for the car with a portion of their gross salary. Often employers have access to discounts. There would be no credit checks for the employee, no deposit and the employee will have the use of a fully maintained and insured new vehicle for the period of the lease. There may also be the option for the employee to purchase the car at the end of the contract agreement.
Pension considerations
Beyond the occupational pension scheme, deducting pension contributions from gross salary saves national insurance contributions for both the employer and employee, and also income tax for the employee too. Employees are also entitled to
£500 annually towards pension advice, this can also be provided via salary sacrifice, in a one-off payment, or over the year, saving NIC and income tax also.
We hope you have found the suggestions above helpful. In our next article in this series, we will be looking at Resident Foreigners (and Non-Doms). As always, please contact us to discuss your circumstances with you.
These articles have been written to provide a general guide to potentially highly complex issues. Whilst great care has been taken in the production of these articles, they are intended to provide the clients and friends of Ritchie Phillips LLP with an outline of the issues individuals, families and trustees should consider and you should seek specific advice before taking or refraining from any action.
