Fleet operators and their drivers face several tax changes in 2026, including a rise in company car tax and an increase in fuel duty.
Benefit-in-kind (BIK) tax for company car drivers will increase by one percentage point from April, with fully electric cars attracting a BIK rate of 4% in 2026/27. This will increase the monthly cost to a basic rate taxpayer on a £40,000 electric car from £20 to £26.67.
The Government is also introducing a nominal CO2 emissions rate for plug-in hybrid electric vehicles (PHEVs) impacted by a new, stricter emissions test, Euro 6e-bis, in the Finance Bill.
Announced in the Autumn Budget, the temporary BIK tax easement for impacted PHEVs will apply for cars registered from January 1, 2025, to April 5, 2028.
During the easement period, the CO2 emission figure for those PHEVs will be deemed to be a nominal figure of 1g/km for the purposes of the BIK charge rather than the CO2 figure on the registration document.
The conditions that a vehicle must satisfy to be eligible for the easement are:
- The vehicle was first registered on or after January, 2025
- The vehicle’s quoted CO2 emissions figure is 51g/km or more
- The vehicle was registered under any emission standard other than Euro 6d-ISC-FCM or Euro 6e
- The car’s electric range figure is one mile or more
Changes to VED
Vehicle excise duty (VED) will increase in line with inflation from April, but the Treasury has also increased the threshold for when electric cars incur the expensive car allowance from £40,000 to £50,000.
Electric vehicle (EVs) became liable for a surcharge on VED also known as the luxury car tax from April 2025.
The annual surcharge – currently £425 – applies from years two to six after purchase on any new vehicle priced above £50,000.
The £50,000 threshold includes optional extras and is based on the manufacturer’s official list price of the car, not the price actually paid by the customer.
It will increase from £425 to £440 from April 2026.
Fuel duty hike
As announced in the Autumn Budget, fuel duty will be frozen at its current rate until September 2026. It will then increase by 1p from September 1, 2026, 2p from December 1, 2026, and 2p from March 1, 2027.
The Office for Budget Responsibility (OBR) has calculated that the cost of freezing fuel duty rates has cost the Government around £100 billion between 2011 and October 2024.
The extension to the freeze will cost £2.4bn in 2026/27.
Van benefit charge and fuel benefit charges
Currently, the van benefit charge is set at £4,020, the car fuel benefit multiplier at £28,200 and the van fuel benefit at £769 for 2025/26.
From April 2026, the flat-rate van benefit charge will increase to £4,170 and the multiplier for the car fuel benefit will increase to £29,200.
The flat-rate van fuel benefit charge will increase to £798.
First-year allowances
The Government has introduced a 40% first-year capital allowance for leased vans from this month (January).
Under previous rules, leased vehicles were excluded from first-year allowances, meaning businesses that leased vans missed out on the tax advantages available to companies purchasing outright under the full-expensing regime.
The new measure closes that gap, delivering an upfront deduction that improves cashflow.
Analysts suggest it will support more flexible fleet procurement strategies and could help operators expand or refresh their van fleets more quickly.
New electric vehicle tax
While not due to take effect until 2028, the Government is drawing up plans to introduce a new pay-per-mile tax for EVs, including PHEVs.
The new electric vehicle excise duty (eVED) was announced in the Budget and will be set at 3ppm for BEVs and 1.5ppm for PHEVs.
With the Government having launched a consultation on a new pence-per-mile tax on EVs, the Association of Fleet Professionals (AFP) is urging fleets to get involved.
It says it is “essential” fleets highlight potential problems with the scheme through the consultation before it is implemented.
