Electric Company Car Tax Guide

What Is Company Car Tax?

If your employer gives you a car for business and personal use, HMRC counts this as a benefit. It's called a Benefit-in-Kind, or BIK for short. You pay income tax on this benefit, and your employer pays National Insurance on it too.

The amount of tax you pay depends on three things:

• The car's P11D value (the list price, including extras, but not the on-the-road discount you might have negotiated)
• The car's BIK percentage, based on how much CO2 it emits
• Your personal income tax rate (20%, 40%, or 45%)

Electric cars produce no CO2 from the tailpipe. This means they sit in the lowest BIK band of all, making them the cheapest type of company car to run from a tax point of view.

Why Is Electric Company Car Tax So Low?

The government wants more people to switch to electric vehicles. One way to encourage this is to make electric company cars far cheaper to tax than petrol or diesel ones.

Because pure electric cars emit 0g/km of CO2, they qualify for the lowest possible BIK rate. This has been true for several years, and HMRC has now published a clear roadmap of rates through to 2029/30, so businesses and drivers know what to expect.

What Are the Electric Car BIK Rates for 2026/27?

The table below shows the confirmed HMRC rates for fully electric (zero-emission) cars.

Even at 9% in 2029/30, electric cars will still be taxed far more lightly than petrol or diesel models, which can reach 37% to 39% depending on their emissions.

How Do I Work Out My Electric Company Car Tax?

The formula is simple once you know the three numbers involved.

P11D value × BIK rate × your income tax rate = annual tax bill

Worked Example

Let's say you drive a fully electric company car with a P11D value of £40,000, and you pay income tax at the higher rate of 40%.

So a higher-rate taxpayer would pay around £53 a month in tax for this car. A basic-rate (20%) taxpayer would pay around £27 a month for the same car.

How Does Electric Compare to Petrol or Diesel?

The difference is significant, especially for higher-value cars. Here's how a £40,000 car compares across different fuel types for a higher-rate (40%) taxpayer in 2026/27.

This gap of several thousand pounds a year is why so many UK businesses are switching their fleets to electric.

What About Plug-in Hybrids?

Plug-in hybrids (PHEVs) sit between fully electric and petrol or diesel cars. Their BIK rate depends on two things: their CO2 emissions and how far they can travel on electric power alone.

• Cars with a longer electric-only range get a lower BIK rate
• Cars with a shorter electric-only range are taxed closer to petrol rates
• Most PHEVs on sale today fall into the 8% to 16% bands for 2026/27
• From 2028/29, electric-range bands are being removed, and PHEVs will move to an 18% flat rate

If you are choosing between an EV and a hybrid for tax reasons alone, a fully electric car will almost always work out cheaper.

Does Salary Sacrifice Change the Rules?

No. If you get your electric car through a salary sacrifice scheme, you still pay tax based on the same BIK rate and P11D value as any other company car. The good news is that electric cars are one of the few vehicle types not caught by extra rules that usually apply to salary sacrifice arrangements, known as Optional Remuneration Arrangements (OpRA).

This means salary sacrifice for an EV can still work out as one of the most tax-efficient ways to get a new car, because:

• You save on income tax and National Insurance through the sacrifice itself
• The car is then taxed at the very low EV BIK rate on top

What Does This Mean for Employers?

Businesses also benefit from offering electric company cars.

• Employers pay Class 1A National Insurance at 15% on the BIK value, so a lower BIK value means lower employer costs too
• Cars must be reported to HMRC using a P46(Car) form within 28 days of being provided or taken away
• Employers file a P11D for each employee with a company car, and a P11D(b) to work out total Class 1A National Insurance, both due by 6 July after the end of the tax year
• Many new electric cars also qualify for 100% First Year Allowances, letting a business write off the full cost against Corporation Tax in the year of purchase

Will Electric Car Tax Rates Keep Rising?

Yes, but slowly and predictably. HMRC has confirmed the rates through to 2029/30, rising by small steps each year:

• 2026/27: 4%
• 2027/28: 5%
• 2028/29: 7%
• 2029/30: 9%

This roadmap was reconfirmed at the Autumn 2025 Budget, giving drivers and businesses certainty for the next few years. Locking in a lease now means you know exactly what you'll pay for the length of your agreement, even if future rates change again after 2030.

Is an Electric Company Car Still Worth It?

For most drivers and businesses, yes. Even with the small annual increases, electric company cars remain the cheapest option by a wide margin. A driver moving from a petrol car to an equivalent EV can typically save several thousand pounds a year in personal tax, while the business saves on National Insurance and may benefit from tax relief on the purchase or lease cost.

If you're weighing up your options, it's worth getting a personalised quote based on the exact car and your tax position, since the numbers can shift depending on the model, its list price, and your income.