Taxation of company cars: The appropriate percentage for tax years 2028 to 2029 and 2029 to 2030
Published 30 October 2024
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Who is likely to be affected
Businesses and employers that provide company cars and employees provided with company cars that are made available for private use.
General description of the measure
As announced at Autumn Budget 2024, the appropriate percentage used to calculate an individual’s company car tax for zero emission vehicles will increase for 2028 to 2029 and 2029 to 2030 by 2 percentage points per year.
The appropriate percentage rates for vehicles which produce 1g to 50g CO2 per kilometre and are also capable of operating on electric power within a certain range will be amended. Vehicles with CO2 emissions of 1g to 50g per kilometre will have appropriate percentages of 18% in 2028 to 2029 and 19% 2029 to 2030.
The appropriate percentages for all other emission bands will increase by 1 percentage points per year in 2028 to 2029 and 2029 to 2030. This will be to a maximum appropriate percentage of 38% for 2028 to 2029 and 39% for 2029 to 2030.
Policy objective
This measure will provide long term certainty on company car tax rates including continued incentives to support the take-up of zero emission and electric vehicles.
In addition, the increase in appropriate percentages will ensure the tax system continues to support the sustainability of the public finances.
Rates for electric vehicles will increase gradually, while maintaining a significant differential between electric vehicles and internal combustion engine (ICE) vehicles. Appropriate percentages for hybrid vehicles (with CO2 emissions of 1g to 50g per kilometre) will be increased to align more closely with ICE vehicles, to further focus support towards electric vehicles.
Background to the measure
The appropriate percentages for company cars for the tax year 2025 to 2026 through to the tax year 2027 to 2028 were announced at Autumn Statement 2022 and legislated for in Finance Act 2023.
The changes in the appropriate percentage for company cars for the tax year 2028 to 2029 through to the tax year 2029 to 2030 were announced at Autumn Budget 2024.
Detailed proposal
Operative date
This measure will take effect from 6 April 2028 and the rate changes will apply to the 2028 to 2029 and 2029 to 2030 tax years.
Current law
Sections 121 to 148 of the Income Tax (Earnings & Pensions) Act 2003 (ITEPA) provide for calculating the cash equivalent of the benefit of a company car which is made available for private use. In broad terms, this depends on the list price of the car plus taxable accessories, multiplied by the level of CO2 emissions the car produces, which is expressed as the appropriate percentage.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25 to make the following changes.
Section 139 of ITEPA sets out the basis for calculating the appropriate percentage for cars with registered CO2 emissions.
Section 139(1) and Section 139(3)(a) ITEPA will be amended to increase the appropriate percentages for zero emission vehicles by 2 percentage points and by 1 percentage points per year across all other emission bands to take effect for tax year 2028 to 2029. A further 2 percentage points for zero emission vehicles and 1 percentage points across all other emissions will be added to take effect from tax year 2029 to 2030.
Section 139(3)(b) will be amended to increase the appropriate percentage limit by one percentage point to take effect from the tax year 2028 to 2029. A further 1 percentage point will be added to the limit to take effect from tax year 2029 to 2030.
Section 140 of ITEPA sets out the rules for cars without a CO2 emissions figure.
Section 140(3)(a) will be amended from 2 percent to 7 percent to from tax year 2028 to 2029 to reflect the appropriate percentage for zero emission vehicles. A further percentage point will be added to take effect from tax year 2029 to 2030.
Section 140(3)(b) will be amended to reflect the 1 percentage point increases in appropriate percentage and appropriate percentage limit for tax years 2028 to 2029 and 2029 to 2030.
Section 141 ITEPA sets out the rules for diesel cars. Section 141(2) will be amended to reflect the 1 percentage point increases in appropriate percentage limit for tax years 2028 to 2029 and 2029 to 2030.
Section 142 of ITEPA sets out the rules for cars registered before 1 January 1998. Section 142(2) and Section 142(3) will be amended to reflect the 1 percentage point increases in appropriate percentage and appropriate percentage limit for tax years 2028 to 2029 and 2029 to 2030.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| — | — | — | — | + 135 | + 210 |
These figures are set out in table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will impact an estimated population of 760,000 employees who drive a company car. It is anticipated that these individuals will see increased costs due to the increase in appropriate percentages.
Customer experience is expected to remain broadly the same as there is no change to how individuals interact with HMRC.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
HMRC does not hold data on the protected characteristics of people who drive company cars. Company car use will vary by occupation and there may be overrepresentation of some protected groups, however it is not possible to determine the impacts conclusively.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on the estimated 100,000 businesses who provide company cars from 6 April 2028. Businesses will need to ensure the new appropriate percentages coming into effect from 6 April 2028 are used for the purposes of calculating company car tax and related charges. One-off costs will include familiarisation with this change. There are not expected to be any continuing costs.
Customer experience is expected to stay broadly the same because the method of reporting company car tax remains the same. The new appropriate percentages will be published in advance to support businesses to familiarise themselves with changes.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
HMRC will implement these changes as part of business as usual activity and at minimal cost.
Other impacts
This measure supports the government’s climate change objectives by encouraging the take up of zero-emission vehicles. This will reduce carbon dioxide emissions due to transport and improve air quality.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The policy will be kept under review through regular communication with taxpayer groups affected by the measure.
Further advice
If you have any questions about this change, contact the Employment Benefit and Expenses Policy Team by email: [email protected].