Commercial car tax explained for UK businesses

If you or your team use vehicles for work, you'll encounter commercial car tax rules at some point. These rules affect whether you pay tax on a van, pick-up or company car and how much that tax is. The way HMRC defines vehicles can significantly affect your costs, so it is worth understanding the basics.

This guide explains how commercial vehicle company car tax works, outlines the current rates, and discusses how recent changes may impact you. We'll also cover electric vans, low-emission options, and tips on how to keep your tax bill under control.

What is commercial car tax and who needs to pay it?

Commercial car tax applies when a vehicle provided by an employer is used for personal as well as business purposes. The amount of tax depends on whether the vehicle is classed as a car or a commercial vehicle (like a van or pick-up).

The distinction exists because company car tax on commercial vehicles is usually lower than tax on standard company cars. HMRC sets out strict definitions to stop people passing off lifestyle cars as business vehicles.

You may be affected by commercial company car tax if:

• You provide vans or pick-ups to staff.
• You drive a company van that you sometimes use outside of work.
• You are part of a company car scheme that includes light commercial vehicles.

What counts as private use for a company van?

HMRC draws a clear line between business and private use. Business use includes driving to meetings, visiting clients, or transporting tools. Private use covers things like driving to the supermarket, school runs, or going on holiday.

Commuting between home and a regular workplace is also counted as private use. If you only use the van for business journeys, or for what HMRC calls "insignificant private use", you may avoid extra tax charges. But if the vehicle is used regularly for personal reasons, it will be taxed as a benefit.

Current commercial vehicle tax rates (VED and BIK)

There are two main types of tax to think about: Vehicle Excise Duty (VED), often known as road tax, and Benefit-in-Kind (BIK), which applies when staff receive a taxable benefit from using a company vehicle.

Vehicle Excise Duty (VED): For vans and other commercial vehicles, VED is charged at a flat rate rather than linked to emissions. As of April 2025, the standard rate is £345 per year.

Benefit-in-Kind (BIK): If you provide a van for private use, HMRC applies a flat-rate taxable benefit. For the 2025/26 tax year, the standard van BIK is £3,960 with fuel benefits charged separately if you cover private fuel.

Employers need to report these benefits to HMRC through payroll, and employees pay income tax on them. Employers also pay Class 1A National Insurance on the taxable value.

Key tax changes in 2025 for vans and pick-ups

In April 2025, HMRC implemented new rules for taxing pick-ups following its review of how "dual-use" vehicles and high-spec pick-ups should be treated.

Since April 2025, most double-cab pick-ups that are designed for lifestyle use as much as for carrying goods are now treated as cars rather than vans. This means they are taxed under the standard company car rules, which are usually more expensive because they are linked to emissions and list price.

This change is significant if your business runs a fleet of pick-ups. If the vehicle (or vehicles) is used primarily for business, it's worth considering alternative van models or electric options to help manage costs.

Are pick-up trucks taxed as cars or vans?

Since April 2025, HMRC has implemented stricter rules for double-cab pick-ups. The taxation now depends more on the vehicle's design and intended use rather than just payload capacity. If a pick-up is marketed as a lifestyle vehicle with extra seating and comfort features, it now falls under car tax rules rather than commercial vehicle rules.

Electric and hybrid commercial vehicles tax rules

Electric vans currently have different tax treatment compared with petrol or diesel vehicles, though recent changes have made them less favourable than before.

• VED: Since April 2025, electric vans pay the same flat-rate VED as other commercial vehicles - £345 per year. Previously, they were exempt from VED.
• BIK: Electric vans used for private journeys now pay the same BIK rate as petrol or diesel vans - £3,960 for the 2025/26 tax year. Previously, they had a 0% BIK rate, but this exemption ended in April 2025.

Hybrid vans usually pay the same rates as petrol or diesel vehicles, depending on their emissions classification.

Do electric commercial vehicles pay road tax?

Yes, since April 2025, electric vans pay the same flat-rate VED as petrol and diesel vans - £345 per year. The previous exemption for electric vehicles ended as part of the government's broader tax reforms.

Government grants for electric commercial vehicles have been significantly scaled back, with most purchase incentives now discontinued. It is worth checking the Office for Zero Emission Vehicles (OZEV) website for any remaining incentives that may apply to your situation.

How to manage and reduce commercial car tax costs

Commercial car tax can be a significant ongoing expense, but there are steps you can take to reduce it.

Choose the right vehicle: Ensure your vans or pickups meet HMRC’s definition of a commercial vehicle. A vehicle taxed as a van will usually attract lower BIK charges than one taxed as a car.

Limit private use: Keep private use of company vans to a minimum. HMRC allows for "insignificant private use", but regular commuting or leisure trips can increase your tax bill.

Consider timing of purchases: While electric vans no longer benefit from tax exemptions, they may still offer operational cost savings through lower fuel costs and reduced maintenance requirements.

Claim allowances: You can usually claim capital allowances on commercial vehicles and offset running costs against taxable profits. If you have an accountant or a CFO/FD, they'll help manage this.

Financing the move to cleaner, more tax-efficient vehicles

Moving to newer, more efficient vehicles (especially if you're running a fleet) can still make financial sense despite recent tax changes. The operational benefits of newer vehicles often offset the reduced tax advantages.

However, the transition requires an upfront investment. And if cash flow is tight, you won’t have the liquidity required to make the investments needed. That is where we can help.

An iwoca Flexi-Loan gives you the flexibility to invest in new vans or cars without tying up all your working capital. You can borrow what you need, repay early without penalties, and manage repayments in a way that suits your needs.

If you want to upgrade your vehicles or switch to low-emission options, our Flexi-Loan can help you make the move. Applying takes a few minutes. 

‍