A fossil-fuel company car will become significantly more expensive from 2027

From 1 January 2027, employers will face a new payroll tax charge on passenger cars that are not fully electric. This is referred to as the pseudo-final payroll tax levy. The measure will apply in addition to the employee's normal taxable benefit for private use of a company car and may therefore represent a substantial additional cost for the employer. It is therefore important to review existing lease agreements, planned vehicle replacements and future company-car policy now.

What is the pseudo-final payroll tax levy?

If, as an employer, you make a passenger car available to an employee and the car is also used privately, you will be liable for an additional employer charge from 1 January 2027 if the car emits CO2.

The rules apply to petrol, diesel, hybrid and plug-in hybrid cars, among others. Only passenger cars recorded in the vehicle registration system as emitting 0 grams of CO2 per kilometre will fall outside the scope of the levy. In practice, these will mainly be fully electric cars.

The pseudo-final payroll tax levy will also apply where the car is used only for business travel and commuting. For the purposes of this measure, commuting is treated as private use. The familiar threshold of no more than 500 private kilometres per year will not provide an exemption.

How much is the levy?

The pseudo-final payroll tax levy will amount to 12% of the car's value for tax purposes per year.

For cars that are no more than 25 years old, the list price including VAT and private motor vehicle and motorcycle tax (BPM) will be used. For cars over 25 years old, the fair market value will apply.

Example:

In 2027, an employer makes a hybrid car with a list price of EUR 40,000 available to an employee. The pseudo-final payroll tax levy will be: 12% of EUR 40,000 = EUR 4,800 per year. This represents an additional employer cost of EUR 400 per month. If the car is made available for only part of a calendar month, the entire month will nevertheless count for the purposes of this levy.

The normal taxable benefit will continue to apply

It is important to note that the pseudo-final payroll tax levy will not replace the normal taxable benefit for private use of a company car. If the car is used privately, the employee will still be taxed on the normal benefit through payroll. In addition, the employer will pay the 12% pseudo-final payroll tax levy. There will therefore be two separate tax consequences:

• the employee is taxed on the benefit for private use of the company car;
• the pseudo-final payroll tax levy is payable by the employer. The employer may not pass the pseudo-final payroll tax levy on to the employee.

Who will the rules apply to?

The rules apply to employers that make a fossil-fuel or hybrid passenger car available to an employee. This may be a leased car or a vehicle from the business's own fleet. A director-major shareholder who is treated as an employee for payroll tax purposes will also fall within the scope of the rules. A sole trader will not be subject to this employer levy in respect of their own car. If the sole trader has employees and makes cars available to them, the rules may, of course, apply.

Vans and motorcycles are not covered by this specific levy. It applies to passenger cars as defined for BPM purposes.

Transitional rules for existing cars

Transitional arrangements have been included for existing cars.

If a passenger car was first made available by the employer to one or more employees before 1 January 2027, the employer will not initially have to pay the pseudo-final payroll tax levy for that car. This transitional relief will apply until 17 September 2030. This means that, from 17 September 2030, the pseudo-final payroll tax levy will also apply to cars that were already made available before 1 January 2027, provided they still fall within the scope of the rules at that time.

The relevant date is therefore the date on which the car is actually made available by the employer. Merely signing a purchase or lease agreement before 1 January 2027 will not be sufficient if the car is not delivered to the employee until after that date.

If, from 2027, a car is replaced by another fossil-fuel or hybrid car, the replacement vehicle will in principle immediately become subject to the pseudo-final payroll tax levy. Similarly, if the car is transferred to another employer, the new employer cannot automatically rely on the transitional relief available to the

previous employer.

Our advice

Prepare a timely inventory of the passenger cars used within your business and the dates on which they were first made available to employees.

Also review the expiry dates of current lease agreements and planned vehicle replacements.

For each car, assess:

• its list price for tax purposes;

• whether it is fully zero-emission;

• the date on which it was first made available;

• the lease agreement's expiry date;

• the cost of the pseudo-final payroll tax levy from 2027;

• whether a fully electric car or another mobility solution would be more financially attractive.

It is therefore advisable not to wait until the end of 2026 to review your fleet and mobility policy. The new rules should be taken into account now, particularly when entering into new lease agreements or making vehicle replacement decisions.