Wheels – True Perk or Expensive?

When an employer’s car is available for an employee’s personal use, there is an income tax charge on the employee – but that charge depends on what the vehicle is.

Class 1A National Insurance contributions (NICs) are payable by the employer on the value of the benefit on these vehicles.

1.Cars

Employers cannot claim annual investment allowance (AIA) on cars, but writing down allowances are available depending on the CO2 emissions – cars below 50g/km qualify for the main pool rate of 18%.

For the employee, the income tax charge depends on the car’s list price (not the actual purchase price) applied to a percentage (which increases with the car’s emissions – and increases each year); purely electric cars and hybrids capable of 130+miles under battery power attract a 2% rate, with the percentage increasing as the range decreases; combustion engine cars with CO2 emissions below 50g/km have a 14% rate, which increases by 1% in increments of 5g/km.

Diesel engines attract an additional 4% surcharge, though the maximum percentage on any vehicle is 37%.

2.Vans

Goods vehicles (i.e., those whose construction ‘is primarily one for the conveyance of goods or burdens of any description’ per ITEPA 2003, s 115) are subject to income tax based upon a fixed value (£4,020 for 2025/26) – no list prices, no CO2 percentage. If a vehicle is not a goods vehicle and has more than two wheels, it will be a car. As vans, they are not cars; they are eligible for the AIA for the employer.

If a ‘van’ has a row of seats behind the driver, it’s more likely to be a car. The Court of Appeal in Payne & Ors v HMRC [2020] EWCA Civ 889 held that Vauxhall Vivaros and VW Kombis were cars for income tax purposes, as a second row of seats could be fitted in each and thus they were capable of carrying people so the carriage of goods was not a primary purpose – ‘primary’ meaning ‘first and foremost’ not just ‘on a narrow balance’; the vehicle also needs to be looked at in its modified form, rather than how it came off the production line.

3.Double-Cab Pickups

Following the Payne case, the status of those pickups with two rows of seats was seemingly called into question. HMRC has historically regarded such vehicles as vans, provided they meet the definition of a van for VAT purposes (i.e., a one-tonne+ payload). In February 2024, HMRC announced that these pickups would be taxed as cars, in line with the reasoning in Payne – but a week later, they changed their mind.

However, in the October 2024 Budget, the change was reinstated for those vehicles ordered or purchased after 6 April 2025, with April 2029 bringing universal application for all vehicles.

4.Fuel

For the provision of private fuel for cars, the same percentages applying to the car’s list price are applied to a fixed amount of £28,200 (for 2025/26) – so the provision can be as expensive as the car itself! If private fuel is provided, only reimbursement in full for any private use (based on authorised fuel rates) will nullify this charge.

The benefit of van fuel is a flat £729 for 2025/26.

5.Motorbikes

Motorbikes are neither cars nor vans, and are therefore treated like any other piece of machinery.

Employees are subject to the rules for using employer’s assets, i.e., they are taxed upon 20% of the asset’s value.

Practical Tip

The provision of a company car for private purposes is expensive for both employers and employees, especially with expensive and more polluting cars; vans are certainly cheaper, but to qualify as goods vehicles, they must have no additional seating for passengers beyond those sitting by the driver.