The return of company cars is gathering pace, largely because electric and low-emission vehicles offer more favourable tax treatment.
Company car numbers fell by 240,000 between 2015/16 and 2020/21. Since then, they have increased every year. HMRC’s latest figures show that 920,000 directors and employees had a company car in 2024/25.
Electric cars are driving the increase
Fully electric cars have seen the biggest shift.
Before 2020/21, they made up only a small proportion of company cars. By 2024/25, they accounted for just over half of the total.
Add low-emission hybrids producing between 1 and 50 grams of CO2 per kilometre, and together they account for around three-quarters of all company cars.
Lower tax costs help explain their growing popularity.
For the current tax year, a fully electric company car has a 4% benefit-in-kind rate. This compares favourably with the rates that apply to many petrol and diesel cars.
For example, a Tesla Model Y Performance Auto costing more than £60,000 would give an annual tax charge of around £990 for someone paying Income Tax at 40%.
Employer-provided charging can bring another advantage. A charging point for an electric company car, either at work or at the employee’s home, does not create a separate taxable benefit.
Hybrids can still offer a tax advantage
Low-emission hybrids still benefit from favourable tax treatment, although the rates are higher.
Their benefit-in-kind rate will typically sit between 10% and 16%.
For a Toyota Prius plug-in hybrid costing around £38,000, the annual tax charge would be just over £1,500 for someone paying Income Tax at 40%.
Even so, the tax cost can still compare favourably with many conventional company cars.
Rates will rise over the next few years
The tax advantage of electric and low-emission company cars will gradually narrow.
By 2029/30, the benefit-in-kind rate for a fully electric company car will rise from 4% to 9%. Rates for low-emission hybrids will also increase.
Favourable tax treatment has played an important part in the return of company cars. However, when choosing a vehicle, it is worth looking at how the tax cost may change over the time you expect to keep it.
You can use HMRC’s company car and car fuel benefit calculator to work out the tax cost of a particular vehicle.