What were the changes for company cars and vehicles in the Budget 2025?

The Chancellor, Rachel Reeves, presented the Government’s Budget on 26th November 2025 and there were several important changes affecting business vehicles that you need to be aware of, covering Electric Vehicles (EVs), fuel duty and the Employee Car Ownership Scheme (ECOS). 

For a summary of the key Budget 2025 announcements affecting you and your business, see our article here. 

What was announced for EVs? 

There were several announcements affecting EVs in the Budget 2025. As EVs are currently a tax efficient way to provide a company car due to their low benefit-in-kind (BIK) rates, these new measures will affect many businesses and employees. 

• Electric Vehicle Excise Duty (eVED) – a new mileage-based charge on EVs, including plug-in hybrids, beginning in April 2028. The eVED is in addition to the existing Vehicle Excise Duty (VED) which has applied to EVs since 1st April 2025. For 2028/29 the eVED will be 3p per mile for battery EVs and 1.5p per mile for plug-in hybrids, payable annually. See the Government’s consultation on eVED here. 
• Expensive Car Supplement (ECS) changes – the Government announced an increase to the ECS threshold for battery EVs, from £40,000 to £50,000 in April 2026. The ECS is an additional VED charge which is spread over five years, commencing a year after the vehicle is first registered, totalling £2,370 for a car purchased in 2025/26. 

For employers providing EVs under a company car scheme, the eVED will reduce the attractiveness of an EV offer to employees but the increase to the ECS threshold may at least partially offset this extra cost.  

What about petrol and diesel vehicles? 

The main announcement affecting traditional cars was that the 5p per litre fuel duty reduction (in place since March 2022) has been extended a further five months taking it to September 2026. The 5p reduction will then be gradually reversed as follows: 

• Up 1p from 1st September 2026 
• Up a further 1p from 1st December 2026 
• Up a further 2p from 1st March 2027 
• From 1st April 2027 fuel duty will rise with the Retail Price Index (RPI) 

The RPI is an older form of inflation measure which takes into account the cost of home ownership. 

Are there any changes to benefit-in-kind tax on company cars? 

One change was announced which affects a specific kind of company car scheme – the ECOS. Under ECOS, a company provides a car to an employee, and ownership of the vehicle is transferred to the employee immediately. Currently under this scheme, employees are currently taxed under the beneficial loan rules, which are more advantageous to employees than the more usual BIK rules. 

Previously, HMRC had announced changes bringing ECOS into the BIK tax regime in October 2026. The Government announced in the Budget 2025 that this change has been delayed until April 2030, meaning continued tax savings for employees and employers compared to the normal BIK rules.  

First published 27 Nov 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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