Company car driving is back on the increase, HMRC data shows

The number of people opting for company cars has risen for the first time in six years, according to data from HM Revenue and Customs.

Another 40,000 people paid company car tax in the fiscal year to May 2023, taking the total to 760,000, compared with the prior year.

The number of employees paying company car tax had fallen consistently since 2016, when 960,000 people were paying benefit in kind tax on a company vehicle.

Salary sacrifice schemes, which enable employees to lease a car in a more tax efficient manner, are one measure that has been contributing to the decline, but HMRC also introduced voluntary reporting in 2016 and it acknowledges that the number of company car drivers could be even higher due to “considerable underreporting”.

The number of company car drivers had been steadily declining since 2015/16, when there were 960,000 employees paying BIK on a company vehicle.

Over the period from 2011/12 to 2019/20 the total taxable value of reported company cars increased significantly from £3.61bn to £5.43bn, but fell to £4.62bn in 2020/21, £3.95bn in 2021/22 and £3.6bn in 2022/23.

The decrease in 2020/21  was driven by a reduction in the number of company cars and a shift towards electric vehicles which are subject to lower BIK tax rates.

HMRC says that the latest increase in company car drivers in 2022/23 may indicate "a slight return to more normal activity" after the COVID pandemic resulted in a reduction in economic activity.

“Changes in work practices during that period may have continued into 2021/22,” it added.

The shift to electric powered cars has continued through to 2022/23, with almost a quarter of million company cars fully electric.

The number of reported recipients of company cars with CO2 emissions of 75g/km or less was 369,000, up from around 243,000 in the previous tax year.

This includes fully electric cars which numbered 50,000 in 2020/21, rising to 125,000 in 2021/22 and 222,000 in 2022/23 - 29% of the company car fleet.

Measures to drive down carbon emissions from cars, and encourage selection of lower emitting cars, show significant success - compared to 2002/03 when 58% of company cars had reported emissions of 165g/km or more, the latest HMRC statistics show this was down to only around 2% of company cars in 2022/23.

After excluding electric cars from the enttire pool, the average CO2 emission rate has reduced to 99g/km confirming a trend towards lower emission ICE cars.

In addition, the proportion of company cars using diesel fuel reduced to 23% (170,000) in 2022/23.

Ian McMahon, parter at UHY Hacker Young, said: “There are major Government incentives  on the use of electric vehicles as company cars.

“Employees only have to pay a tax charge on 3% of the value of an electric company car’s value per year versus up to 37% of the value of a normal car.

“The huge increase in electric company cars shows electric vehicles can keep growing market share if they are properly subsidised.”