The Treasury enacted this Order using powers under the Income Tax (Earnings and Pensions) Act 2003 to amend specific cash equivalent figures relating to the taxation of employee benefits for company cars and vans.
The Order increases the benchmark monetary amounts used to calculate the taxable benefit for car fuel, the cash equivalent of a van benefit, and the cash equivalent for van fuel.
These changes are effective from the 2026-27 tax year and subsequent tax years, affecting how private use of company vehicles is taxed as earnings.
Arguments For
Supports the government's ongoing adjustments to the tax structure governing employee benefits in kind related to company cars and vans.
Ensures that the statutory figures used to calculate taxable benefits account for inflation or policy changes, maintaining the intended tax yield from these benefits.
Provides clarity and certainty for employers and employees by specifying the exact monetary values and commencement date (April 6, 2026) for the upcoming tax year.
Arguments Against
Raises the direct cost (taxable cash equivalent) for employees receiving fuel for company cars and vans, potentially reducing their net income.
Increases administrative burden on employers who must update payroll software and processes to reflect the new statutory thresholds for calculating benefit-in-kind taxation.
The adjustments necessitate changes to existing financial planning for businesses maintaining company car and van fleets.
The Treasury make the following Order in exercise of the powers conferred by section 170(1A)(c), (2), (5) and (6) of the Income Tax (Earnings and Pensions) Act 2003.
The Treasury department officially created this Order using specific statutory powers granted by sections of the Income Tax (Earnings and Pensions) Act 2003.
This establishes the legal basis for modifying the tax rules concerning earnings and pensions related to these benefits.
- Citation, commencement and application
(1) This Order may be cited as the Van Benefit and Car and Van Fuel Benefit Order 2025.
This section formally titles the legislation as the Van Benefit and Car and Van Fuel Benefit Order 2025.
This establishes the official short title for referencing the legal instrument.
(2) This Order comes into force on 6th April 2026 and applies to the tax year 2026-27 and subsequent tax years
This confirms that the provisions within this Order take legal effect on April 6, 2026.
The changes will be applied when calculating income tax for the 2026-27 tax year and for every tax year following it.
- Amendments to the Income Tax (Earnings and Pensions) Act 2003
(1) The Income Tax (Earnings and Pensions) Act 2003 is amended as follows.
This regulation governs the changes being made directly to the existing primary legislation, which is the Income Tax (Earnings and Pensions) Act 2003.
It confirms that the ensuing subsections detail the specific modifications.
(2) In section 150(1) (car fuel: calculating the cash equivalent), for “£28,200” substitute “£29,200”.
This amends the calculation basis for the taxable benefit of fuel provided for a company car.
The figure used in section 150(1) increases from £28,200 to £29,200 for the relevant tax years.
(3) In section 155(1B)(b) (cash equivalent of the benefit of a van), for “£4,020” substitute “£4,170”.
This revises the set cash equivalent for the benefit of a company van when it is available for private use (and is not zero-emission).
The statutory amount increases from £4,020 to £4,170.
(4) In section 161(b) (van fuel: the cash equivalent), for “£769” substitute “£798”.
This adjusts the specific cash equivalent figure that applies when fuel is provided for a company van separate from the van benefit itself.
The value changes from £769 to £798.
Explanatory Note (This note is not part of the Order)
This Order amends sections 150(1), 155(1B)(b), and 161(b) of the Income Tax (Earnings and Pensions) Act 2003 (“the Act”).
The explanatory note clarifies that the Order legally modifies three specific sections of the 2003 Act governing taxable vehicle benefits.
It stresses that this note itself is not legally binding.
Where an employee receives fuel for a car or van as a result of their employment and they are chargeable to tax in respect of the vehicle under sections 120 or 154 of the Act, the cash equivalent of the benefit of that fuel is treated as earnings under sections 149 and 160 of the Act.
If an employee gets free fuel for a company car or van due to their job, that benefit is treated as taxable income under specific sections of the Act relating to earnings.
The cash equivalent of the benefit of the fuel for a car is normally calculated by applying the “appropriate percentage” (usually calculated by reference to the CO2 emissions of the car) to the figure in section 150(1) of the Act. Article 2(2) increases this figure to £29,200 for the tax year 2026-27 and subsequent tax years. The cash equivalent of the benefit of fuel for a van is set out in section 161(b) of the Act. Article 2(4) increases this figure to £798 for the tax year 2026-27 and subsequent tax years.
For company cars, the taxable fuel benefit is calculated by multiplying the car's CO2 emissions percentage by the base figure in section 150(1), which Article 2(2) raises to £29,200.
Additionally, the specific cash equivalent for van fuel, as detailed in section 161(b), is increased by Article 2(4) to £798.
Where a van is made available by reason of employment to an employee for private use that is more than insignificant and not limited to ordinary commuting, section 154 of the Act treats the cash equivalent of the benefit as earnings. For vans that cannot in any circumstances emit CO2 by being driven, the cash equivalent of the benefit for the tax years 2021-22 or a subsequent tax year is nil.
If an employee uses a company van privately for more than minor use or regular commuting, the value of that benefit is taxed as earned income under section 154.
Vans that are physically incapable of emitting CO2 while driven are exempt from this cash equivalent charge for 2021-22 onwards.
For other vans, the cash equivalent of the benefit is set out in section 155(1B)(b) of the Act. Article 2(3) increases the figure to £4,170 for the tax year 2026-27 and subsequent tax years.
For standard vans not covered by the nil-emission exemption, the taxable benefit is determined by section 155(1B)(b).
Article 2(3) raises this prescribed cash equivalent figure to £4,170 for the 2026-27 tax year onward.
A Tax Information and Impact Note covering this instrument will be published on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.
The note confirms that a detailed Tax Information and Impact Note, which explains the financial effects of this legislation, will be made publicly available on the official government website.
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