Thinking of Upgrading Your Company Car? The Tax Changes You Need to Know!

As we enter a new year, many business owners and company directors are thinking about how they can make the most of their allowances and incentives. One popular consideration? Buying a new company car. With the variety of tax reliefs and savings available, it might seem like the perfect time to treat yourself to a brand-new electric vehicle (EV) or upgrade your current company car.

But before you make the decision to go electric or opt for a new model, there are some important tax changes coming your way in April 2025. If you’re planning to buy a new company car, especially if it’s an electric vehicle, it’s essential to understand how these changes could impact your tax bill and affect your business finances.

In this blog, we’ll guide you through the key points of the latest tax updates and how they may influence your choice of company car. Let’s dive in.

The UK’s New Tax Changes for Company Cars: What You Need to Know

The UK government has announced a series of changes to the taxation of electric vehicles (EVs) that will come into effect in April 2025. While electric cars have long been touted as the future of corporate fleets and personal vehicles, these new changes could impact your tax situation in a few important ways. Here’s a closer look at what you should expect.

1. New Luxury Car Tax: £40,000 Threshold for Electric Cars

If you’re considering buying a new electric vehicle as your company car, the first thing to be aware of is the introduction of a “luxury car tax” for electric vehicles priced over £40,000. This change comes after years of generous tax incentives for electric vehicle buyers, which have made EVs an increasingly popular option for company cars.

However, under the new rules set to take effect in 2025, any electric vehicle with a list price above £40,000 will be subject to an additional tax charge. This means that vehicles such as the Tesla Model S, Porsche Taycan, and Jaguar I-PACE—among other popular high-end models—will face higher annual taxes if they exceed the £40,000 threshold.

As a company director, you’ll want to take this into account, especially if you’re considering opting for a more premium electric car. The luxury car tax is projected to add an extra £2,125 to your annual road tax bill, on top of other standard charges.

2. How This Could Affect Your Business Tax Relief

For many businesses, purchasing a company car offers the benefit of tax reliefs. The cost of the car, including financing, can be offset against your corporation tax bill, which provides a significant advantage for company car owners. However, the new luxury car tax could make these incentives less beneficial for those opting for higher-priced electric vehicles.

With the additional tax charges being introduced, the total cost of owning a high-end electric car could increase substantially. This means that even though electric vehicles still offer great tax benefits over petrol and diesel cars, the new tax rules could reduce the attractiveness of more expensive EVs for company owners.

It’s important to assess whether the extra tax burden would outweigh the advantages of the purchase, especially considering how it could impact your business’s tax position in the long term.

3. What About Petrol and Diesel Company Cars?

While electric vehicles have enjoyed strong tax advantages, particularly with zero emissions, the new policy changes highlight a shift in how EVs are treated compared to petrol and diesel cars. If you’re looking at a petrol or diesel company car, the impact of the tax changes will be less significant.

The tax reliefs for petrol and diesel cars remain similar to those of the past, but they are generally less generous than the current EV incentives. Under the current rules, petrol and diesel vehicles still face higher tax rates, given their carbon emissions. However, if you’re opting for an electric vehicle that exceeds £40,000, the extra tax burden may make you reconsider whether a traditional car might actually be a more cost-effective option from a tax perspective.

4. What This Means for Your Company Car Budget

When considering a company car purchase, it’s important to factor in both the upfront cost and the ongoing tax implications. The new £40,000 threshold and the potential additional tax charges could increase the total cost of owning a premium electric vehicle. This is especially relevant if your company car budget has historically been high enough to afford top-of-the-range models.

The good news? If you’re interested in an electric vehicle but want to avoid the additional taxes, there are still plenty of affordable EV options available on the market that will fall below the £40,000 threshold. Opting for a more cost-effective electric car could allow you to take advantage of the tax breaks without worrying about the luxury car tax.

Additionally, it’s always a good idea to speak with us at BM & Co Accountants or financial advisor about the most tax-efficient options for your company car. They can help you navigate the new tax landscape and ensure that you’re making the right decision for both your business and your personal finances.

5. The Bigger Picture: EV Taxation and Net Zero Goals

The UK government is aiming for a net-zero carbon emissions target by 2050, and the promotion of electric vehicles plays a key role in achieving that goal. While the new tax changes may seem like a setback for EV owners, they are part of a broader effort to balance the government’s financial needs while still promoting a transition to greener vehicles.

The government has been keen to encourage the shift to electric cars by offering incentives, but with more people switching to EVs, there is a growing need to generate tax revenues from this new vehicle class. The new luxury car tax is one way to ensure that the growing EV market contributes to public finances, but it’s important that such changes don’t discourage businesses and individuals from making the switch to greener vehicles.

As a business owner, you’ll want to stay informed about these shifts in policy and ensure that your car purchasing decisions align with both your business strategy and environmental goals.

Conclusion: Should You Buy a New Company Car in 2025?

If you’re thinking of treating yourself to a new company car this year, it’s crucial to consider the tax implications of your decision. The proposed changes to electric vehicle taxation could have a significant impact on the cost of owning a company car, particularly for those considering higher-end electric vehicles.

Before making your purchase, it’s worth evaluating your options. Do you want to splurge on a premium electric vehicle and factor in the additional taxes? Or would you be better off opting for a more affordable EV model that falls under the £40,000 threshold to avoid the new luxury car tax?

No matter what route you decide to take, it’s always wise to consult with us at BM & Co Accountants to ensure that your choice aligns with your business’s financial strategy and tax planning. With the right advice, you can make a decision that benefits both your business and your personal goals, while also keeping in line with your environmental objectives.

What’s Your Plan?

Have you been considering an electric vehicle for your company fleet, or are you leaning toward a more traditional petrol or diesel model? Reach out to us at BM & Co Accountants for a tailored consultation on how best to navigate these new tax changes!