The population of directors and employees utilizing company vehicles decreased by 240,000 during the 2015/16 to 2020/21 period; however, this trend has reversed annually since then, primarily attributable to the favourable tax incentives associated with electric and hybrid vehicles.
According to HMRC’s most recent data for the 2024/25 tax year, the current figure stands at 920,000 directors and employees with company vehicles.
Lower Emission Vehicles
The most significant transformation concerns fully electric company vehicles. Prior to 2020/21, such vehicles represented a niche offering, yet adoption has accelerated substantially, now representing marginally over half of all company vehicles by 2024/25. When combined with low emission hybrid options (CO2 emissions ranging from 1 to 50 grams per kilometre), these vehicles comprise approximately three-quarters of the total. Specifically:
A low emission company vehicle carries substantially reduced tax implications relative to conventional petrol or diesel alternatives. In the current tax year, a fully electric company vehicle qualifies for a 4% benefit-in-kind rate.
This translates to an approximate annual tax liability of £990 for a higher rate taxpaying director operating a company-supplied Tesla Y Performance Auto—a vehicle with a market value exceeding £60,000.
Employers providing charging infrastructure for directors and employees to charge electric company vehicles at workplace or residential locations incur no taxable benefit, further enhancing the tax advantages.
The tax framework proves less favorable for low emission hybrids, with benefit-in-kind rates typically ranging between 10% and 16%. For a Toyota Prius plug-in hybrid priced around £38,000, a higher rate taxpaying employee faces an approximate annual tax obligation of just over £1,500; a comparatively modest amount.
Future changes
By 2029/30, the current benefit-in-kind rate of 4% will increase to a much less favourable 9%, putting up the annual tax cost of the Tesla to just over £3,300. Future increases will push up the tax cost of the Toyota Prius hybrid to around £2,870.
The tax cost of having a company car can be calculated using HMRC’s company car and car fuel benefit calculator.