Offering a company car is still one of the most valuable perks a UK employer can give a director or employee, but the tax bill attached to it varies enormously depending on the vehicle chosen. An electric car and a diesel estate with the same list price can produce a tax bill many times apart. This guide explains how company car tax works, the current 2026/27 rates, and how to calculate what you or your employee will actually pay.
Quick Answer
Company car tax, known as Benefit in Kind (BiK) tax, is calculated as the car’s P11D value multiplied by its BiK percentage, multiplied by the employee’s Income Tax rate. For 2026/27, fully electric cars sit at the lowest BiK rate of 4%. Petrol and diesel cars range from 17% up to a 37% cap, based on CO2 emissions, with an additional 4% surcharge for diesel cars that do not meet RDE2 emissions standards.
How Company Car Tax Is Calculated
Three figures determine the tax bill: the car’s P11D value, its BiK percentage based on CO2 emissions and fuel type, and the employee’s marginal Income Tax rate. The P11D value is the car’s list price including VAT and delivery, but excluding the first year’s road tax and registration fee, and it stays fixed for the life of the vehicle as a company car, regardless of how much the car depreciates.
Company car tax = P11D value × BiK percentage × Income Tax rate
Worked example: A petrol car with a P11D value of £30,000, CO2 emissions putting it in the 30% BiK band, and a 20% Income Tax rate produces an annual tax bill of £30,000 × 30% × 20%, which comes to £1,800 a year, or £150 a month.
BiK Rates by Vehicle Type for 2026/27
| Vehicle Type | 2026/27 BiK Rate |
|---|---|
| Fully electric (0g/km CO2) | 4% |
| Plug-in hybrid, 130+ miles electric range | 7% |
| Plug-in hybrid, under 30 miles electric range | 16% |
| Petrol or diesel, 51g/km CO2 and above | 17% to 37%, rising 1% per 5g/km CO2 |
| Diesel not meeting RDE2 standard | Add 4% surcharge, capped at 37% overall |
Electric vehicle rates are rising gradually under a published multi-year schedule, from 4% in 2026/27 to 9% by 2029/30, though this remains far below the 37% cap that applies to the highest-emission petrol and diesel vehicles.
Plug-In Hybrid Rates: Based on Electric Range
Plug-in hybrids with CO2 emissions between 1 and 50g/km are taxed according to their certified electric-only driving range, taken from the certificate of conformity rather than marketing figures. A longer electric range means a lower BiK rate. From April 2028, this range-based approach ends for these vehicles, and all plug-in hybrids in this emissions band move to a single 18% rate regardless of electric range.
Company Car Fuel Benefit Charge
If your employer also pays for private fuel used in a company car, a separate fuel benefit charge applies, calculated using a fixed annual multiplier rather than the actual fuel cost. For 2026/27, the multiplier is £29,200. The same CO2-based BiK percentage that applies to the car itself is applied to this multiplier, then taxed at the employee’s Income Tax rate.
Worked example: A car with a 30% BiK rate and free private fuel produces a fuel benefit of £29,200 × 30%, which is £8,760, taxed at 20% to give an additional £1,752 a year on top of the car benefit itself. Because this charge is often disproportionate to actual fuel used, many employees decline free private fuel and instead reimburse their employer for personal mileage.
Company Van Tax
Vans are taxed differently from cars. Most vans used only incidentally for private journeys are not treated as a benefit in kind at all. Where private use goes beyond incidental use, a flat-rate Van Benefit Charge applies for 2026/27 of £4,170, regardless of the van’s CO2 emissions, with a separate Van Fuel Benefit Charge of £798 if private fuel is also provided. Double-cab pickups changed classification from April 2025 and are now generally taxed as company cars based on CO2 emissions rather than under the van benefit rules.
Reporting Company Car Benefits
Company car and fuel benefits are reported on form P11D, or payrolled in real time if the employer has registered to do so. Our guide to P11D and benefits in kind covers the wider reporting deadlines and the shift towards mandatory payrolling of benefits from April 2027. Employers also pay Class 1A National Insurance at 15% on the taxable value of the benefit, covered in our guide to employer National Insurance contributions.
Company Car vs Car Allowance
Some employers offer a cash car allowance instead of a physical company car, added to salary and taxed as ordinary income rather than through the BiK system. For high-emission petrol or diesel vehicles, a cash allowance can sometimes work out cheaper for a higher-rate taxpayer. For electric vehicles, the very low BiK rate often makes a genuine company car the more tax-efficient choice, since 4% of the P11D value taxed at even the higher rate is usually well below the equivalent addition to taxable salary.
Salary Sacrifice for Electric Company Cars
Salary sacrifice schemes let an employee give up part of their salary in exchange for an electric company car, taxed under HMRC’s Optional Remuneration Arrangement rules. An important exemption applies to vehicles emitting less than 76g/km CO2, including electric and most plug-in hybrid cars, which are taxed on the car’s BiK value rather than the higher of BiK value or salary given up. This exemption is a significant part of why salary sacrifice electric car schemes remain popular with both employers and employees.
Frequently Asked Questions
What is the BiK rate for an electric company car in 2026/27?
4%, rising by 1 percentage point each year under a published schedule, reaching 9% by 2029/30.
How is company car tax calculated?
P11D value multiplied by the car’s BiK percentage, multiplied by the employee’s Income Tax rate.
Does the P11D value change as the car ages?
No. The P11D value stays fixed at the original list price for the life of the vehicle as a company car, regardless of depreciation.
Is company car fuel benefit worth it?
Often not, since the fixed £29,200 multiplier for 2026/27 can produce a tax charge well above the actual value of private fuel used, particularly for lower-mileage drivers.
How are company vans taxed differently to cars?
Vans with only incidental private use are not taxed as a benefit at all. Where private use is significant, a flat £4,170 Van Benefit Charge applies for 2026/27, regardless of CO2 emissions.
Key Takeaways
- Company car tax equals P11D value multiplied by BiK percentage multiplied by Income Tax rate
- Electric cars sit at a 4% BiK rate for 2026/27, far below the 17% to 37% range for petrol and diesel
- The private fuel benefit charge uses a fixed £29,200 multiplier for 2026/27
- Company vans use a flat £4,170 benefit charge rather than CO2-based bands
- Salary sacrifice electric cars benefit from a specific exemption for vehicles under 76g/km CO2
About the Author
This guide was prepared by the Business Mine editorial team, who research and write practical UK business, tax and finance guides. Information is checked against current HMRC guidance at the time of publication. This article is provided for general information only and does not constitute tax advice; for advice specific to your circumstances, consult a qualified accountant.
