The Government is reportedly open to discussions about changing company car tax rules for used electric vehicles (EVs), potentially making second-hand electric cars more attractive to employees and businesses. However, no changes have been confirmed, and the existing benefit-in-kind (BIK) tax rules remain in place.
The way company car tax is calculated could change in the coming years, following discussions between HMRC and representatives of the vehicle leasing industry. The potential reform centres on how employees are taxed when they receive a used company car, including electric vehicles offered through salary sacrifice schemes.
Currently, company car tax is generally calculated using a vehicle’s original list price, known as its P11D value, alongside its taxable benefit-in-kind rate. This means a used car can be subject to the same list-price-based calculation as an equivalent new model, even though its market value may have fallen considerably.
For employees considering an electric company car, this can affect the financial attractiveness of choosing a used vehicle rather than a new one.
Why Is HMRC Considering A Change To Company Car Tax?
According to reporting by Fleet News on 20 October 2026, Matthew Walters, head of consultancy services and customer value at Ayvens, indicated that HMRC had been receptive to industry discussions about introducing more favourable tax treatment for used company cars.
The discussions took place in the context of wider engagement with HMRC over the proposed electric vehicle pay-per-mile tax, known as eVED. The Government has also confirmed specific arrangements for fleet operators, leasing companies and rental businesses ahead of eVED’s planned introduction in April 2028. Read our guide to the new eVED fleet rules for 2028 for details of what the changes mean for businesses.
For a broader explanation of the proposed mileage-based charge, see our guide to electric vehicle pay-per-mile tax and how eVED is expected to work.
One possibility raised by the industry is an adjustment to the taxable value used to calculate company car benefit-in-kind tax. This could potentially allow the calculation to reflect the lower value of a used vehicle rather than relying entirely on its original list price.
However, the details remain uncertain. There has been no confirmed policy announcement, implementation date or published proposal establishing how any revised calculation would work.
HMRC has previously defended the use of list prices as a consistent and straightforward way to calculate company car benefits, regardless of a vehicle’s age or condition. Its position was that the Government keeps all taxes under review.
Businesses and employees should therefore continue to use the existing rules when assessing their company car costs.
How Does Company Car Tax Work For Used Electric Cars?
Company car tax, also known as benefit-in-kind tax, generally applies when an employer provides a vehicle that an employee can use privately.
The taxable benefit is calculated using the car’s P11D list price and the applicable BIK percentage. The employee then pays income tax on that benefit at their relevant tax rate.
For fully electric company cars, the applicable BIK percentage has historically been lower than for many petrol and diesel vehicles, helping make electric cars attractive through company car schemes.
The Government’s published tax rates and future changes are important when comparing vehicles. Businesses and employees can read our guide to plug-in hybrid company car tax rates for 2026 for further context on how company car taxation varies by vehicle type. For further background on the company car tax landscape, read our guide to UK company car tax statistics.
The potential issue with used EVs is that their market value may be substantially lower than their original list price, particularly as the second-hand electric car market develops.
If the tax calculation were adjusted to recognise that difference, some used electric cars could become more financially attractive through employer-provided vehicle schemes.
However, the benefit to an individual would depend on the final rules, the vehicle selected, the employee’s tax rate and the structure of their employer’s scheme.
Could The Change Make Used EV Salary Sacrifice More Attractive?
Salary sacrifice is an arrangement in which an employee gives up an agreed amount of gross salary in exchange for a non-cash benefit, such as a company car. The tax and National Insurance treatment depends on the applicable rules and the circumstances of the arrangement.
Electric cars have become an important part of the salary sacrifice market, partly because of their favourable company car tax treatment. Used electric vehicles offer another potential route for employees who want an EV but do not necessarily need a brand-new model.
Our guide to EV salary sacrifice and how UK employees can drive a new electric car for less explains how these arrangements work and the factors employees should consider.
Tusker reported more than 5,000 used electric vehicles on the road through its pre-loved scheme, alongside more than 3,500 orders during the first seven months of 2026. This represented a 350% increase compared with the same period in 2025.
These figures highlight growing interest in used electric cars through salary sacrifice schemes, although they do not establish how much demand might increase if company car tax rules change.
We explore this developing market further in our article on used EV salary sacrifice demand, including the growing interest in used electric cars through employee vehicle schemes.
For employers, the appeal of used EV schemes can include offering employees a wider choice of vehicles and price points. More favourable tax treatment could strengthen that proposition, but the outcome would depend on the eventual policy and the costs of individual schemes.
What Would A Change Mean For The Wider Vehicle Leasing Market?
The leasing industry has been exploring opportunities in the used electric vehicle market amid concerns about residual values, which are the amounts vehicles are expected to be worth at the end of their contracts. Changes in the second-hand market can also affect vehicle values. Our article on used EV values rising by 7.5% looks at another development affecting the electric car market.
If used EVs receive more favourable company car tax treatment, demand could increase among employees who want an electric vehicle but prefer a lower-cost alternative to a new model.
That could have implications for leasing companies managing the transition from new-vehicle contracts to the second-hand market. It may also influence how employers structure their vehicle benefits and salary sacrifice offerings. Businesses planning a wider transition to electric vehicles can also read our guide to how leasing providers help fleets electrify.
For businesses considering their options, it is worth understanding the differences between business car leasing and other vehicle funding arrangements before making a decision.
The wider market is also shaped by new-car prices, electricity and fuel costs, charging access, vehicle availability and changes to taxation. A potential reform to used-car BIK calculations would be just one part of that picture.
For businesses comparing electric vehicles, our guide to the best electric cars to lease provides a starting point for assessing the available new-car options.
What Should Company Car Drivers And Employers Do Now?
For now, employees and employers should not make financial decisions on the assumption that company car tax for used EVs will be reduced.
There are several practical steps worth considering:
- Check the current BIK rules: Use the applicable tax rates and the vehicle’s relevant P11D value when comparing company car options.
- Compare the full cost: Consider salary sacrifice deductions, income tax, National Insurance implications, charging costs and any other scheme-specific charges.
- Assess new and used options separately: A lower vehicle price does not automatically mean a lower overall cost once tax and scheme arrangements are taken into account.
- Monitor official announcements: Any confirmed changes will need to be assessed against the published rules, implementation date and eligibility criteria.
Employers planning future vehicle replacements should also consider the wider implications of their funding choices. Our guide to business vehicle leasing and finance explains some of the available options for businesses acquiring vehicles.
Until HMRC or the Government publishes a formal change, the existing company car tax framework remains the basis for making decisions.
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