What the car tax changes 2026 mean for drivers and fleets

Introduction: Why car tax changes 2026 matter

Car tax changes 2026 will affect private drivers, company car users and fleet operators across the UK and beyond. Changes to Vehicle Excise Duty (VED), benefit-in-kind (BIK) rates and wider state tax adjustments will influence running costs, purchasing decisions and employer budgeting. Understanding the confirmed shifts is important for motorists planning purchases and businesses preparing payroll and fleet strategies.

Main developments

VED: Nearly 60 models face higher first-year duty

From April, first-year VED rates for a group of higher-priced models have increased. Nearly 60 car models will be subject to a first-year VED of £5,690. That figure reflects a £200 rise from the previous £5,490 level, affecting a total of 59 models as reported. The change will be most felt by buyers of those specific cars when they register new vehicles in the 2026 financial year.

Company cars and BIK

Company car drivers and employers should note a change to benefit-in-kind taxation from April 2026. BIK tax rates for company cars will rise by one percentage point. The guidance indicates that fully electric vehicles will attract a BIK, underlining that electric company cars are not exempt from benefit taxation in the updated framework. Employers will need to factor the additional percentage point into payroll calculations and total cost-of-employment assessments.

State-level tax adjustments

Separately, state tax changes effective from 1 January 2026 will alter marginal rates in some jurisdictions. The top marginal rate of 5.9% is set to fall to 5.65% in 2026, with a further reduction to 5.4% planned for 2027. These state-level adjustments may influence net incomes and broader tax planning for individuals and businesses, though their direct interaction with vehicle taxes will depend on local rules.

Conclusion: Practical implications and next steps

The car tax changes 2026 combine higher upfront VED for certain models with increased BIK pressure on company cars, while state tax rates are set to decline modestly. Buyers of the affected 59 models should budget for the higher first-year levy, and employers should update payroll models to reflect the one percentage point BIK increase. Drivers and fleet managers should review purchase timing, vehicle specification and total cost forecasts to assess the impact on budgets and tax liabilities.