Used Company Car Tax Cut: What It Could Mean for Your Return

Tax Queen

Tax Expert @ Pie

3 min read

What You Need to Know

Nothing has changed yet. People in the car leasing industry say HMRC seems open to lowering the tax on used company cars, especially used electric cars taken through salary sacrifice. So far, HMRC has only said that "the Government keeps all taxes under review".

If you have a company car, your tax this year works the same way it always has, so you don't need to do anything different. If you're a sole trader driving your own vehicle, company car tax doesn't apply to you.

Employees usually pay company car tax through their tax code, because HMRC changes the code to reflect the car's value. Our guide to understanding UK tax codes explains how this works.

How Company Car Tax Works Today

If your employer lets you use a car privately, including for commuting, you pay tax on a "benefit in kind". This is the taxable value of a perk you get from work in place of cash.

That value is based on the car's list price (its P11D price) and its CO2 emissions, and low-emission cars are taxed on a smaller value. Under the current rules, a used car is valued on the same basis as a new one.

Salary sacrifice is when you give up part of your salary in return for the car. The same rules apply here too. For cars with emissions of no more than 75g/km, which includes electric cars, the taxable value comes from the normal benefit in kind rules, not from the salary you give up.

What Might Change

One leasing industry figure who met HMRC officials said a cut could come through a lower taxable value or a lower rate, but probably not this year. HMRC said the list price gives a "consistent and straightforward basis" for all company cars. Until a Budget or draft law confirms a change, it's only a possibility.

Does This Affect Your Self Assessment?

It can if you're an employee or company director who also files a Self Assessment return, for example because you run a side business or let out property. Your employer reports the car benefit to HMRC and should give you the figure, which goes on the employment pages (SA102) of your return.

Your return checks that the right tax has been paid on the car, including anything your tax code didn't collect. Our guide on how to file your UK tax return walks you through the whole process.

If You're Self-Employed

Sole traders don't have company cars, so this idea wouldn't change your bill. Instead, you claim the business share of your vehicle costs, as explained in our guide to claiming vehicle expenses on your Self Assessment.

Get Your Car Figures Ready Now

Whatever HMRC decides about used cars, the figures for your next return are already settled. Your 2025-26 online return is due by 31 January 2027. Check your car benefit figure against your payslips and tax code now, along with any business mileage if you also trade.

If you juggle a job with self-employed work or rental income, Pie Tax is self-assessment software that brings that income together, sorts your allowable expenses and makes filing with HMRC less stressful.

Once your car and mileage figures are checked, you can get your return moving well before January. Try Pie Tax for free when you're ready.