If your employer offers you a company car, the tax you’ll pay on it — known as Benefit-in-Kind (BIK) tax — depends almost entirely on one thing: what you drive. In the 2026/27 tax year, a fully electric company car is taxed at just 4% BIK, while a petrol or diesel model can be taxed as high as 37%. On a £40,000 car, that’s the difference between paying a few hundred pounds a year and paying several thousand.
Below, we break down exactly how company car tax works in 2026/27, how EVs compare to petrol, diesel, and plug-in hybrids, and what the numbers actually look like on a real payslip — plus where the rates are heading over the next few years.
Quick Summary
| Takeaway | Detail |
|---|---|
| EV BIK rate 2026/27 | 4% (up from 3% in 2025/26) |
| Where it’s heading | 5% in 2027/28, then +2 points/year to 9% by 2029/30 |
| Petrol/diesel BIK range | 17%–37%, rising to a 39% cap by 2029/30 |
| PHEV BIK range | 5%–19%, based on electric-only range |
| Employer NIC on BIK | Class 1A National Insurance at 15% |
| Formula | BIK charge = P11D value × BIK% × your income tax rate (20% or 40%) |
How Company Car Tax Actually Works
When an employer provides a car available for private use — not just commuting — HMRC treats that as a taxable benefit under ITEPA 2003. Rather than deducting it directly from salary, the tax is collected through an adjusted PAYE tax code, and the benefit is separately reported on the employer’s P11D.
The amount you pay isn’t based on the car’s running cost or even what your employer paid for it. It’s based on the P11D value — effectively the manufacturer’s list price including VAT, delivery, and any factory-fitted extras over £100 — multiplied by a BIK percentage that HMRC sets according to the car’s emissions and fuel type, and then multiplied by your personal income tax rate.
BIK charge = P11D value × BIK% × income tax rate (20% or 40%)
Why EVs Are Taxed So Differently
The BIK percentage is the lever HMRC uses to steer company car choice. Zero-emission vehicles get their own dedicated band, set far below anything with a tailpipe. For 2026/27, that band sits at 4%. Petrol and diesel cars are banded by CO2 emissions, starting around 17% for the cleanest combustion engines and climbing to 37% for the highest emitters. Plug-in hybrids sit in between, with their rate depending on certified electric-only range — the longer the EV range, the lower the band.
H3: The 2026/27 Rate in Context
This isn’t a one-off discount. Following the Autumn 2025 Budget, the government confirmed the EV BIK schedule through to 2029/30, giving fleets and drivers multi-year predictability:
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
- 2028/29: 7%
- 2029/30: 9% (the confirmed cap)
Even at the 2029/30 cap, 9% remains a fraction of the petrol/diesel ceiling of 39%.
Real-World Cost Example
Numbers make the difference concrete. Take two company cars with a similar £46,000 P11D value, driven by a higher-rate (40%) taxpayer:
Electric car (4% BIK): £46,000 × 4% × 40% = £736 per year (about £61/month)
Petrol car, higher-emissions band (30% BIK): £46,000 × 30% × 40% = £5,520 per year (about £460/month)
That’s roughly £4,800 a year staying in the employee’s pocket simply by choosing electric — before even accounting for fuel savings or lower company-side National Insurance.
What the Employer Pays
It isn’t just the employee who benefits from lower BIK bands. Employers pay Class 1A National Insurance on the same BIK value, currently at 15%. On that same £46,000 EV, the employer’s NIC bill is roughly £276 a year — versus over £2,000 a year on the equivalent petrol car. For fleet-heavy businesses, that gap compounds fast across dozens or hundreds of vehicles.
Plug-In Hybrids: The Middle Ground
PHEVs don’t get a flat rate — their BIK band depends on certified electric-only range, taken from the car’s certificate of conformity (not marketing claims):
- 130+ miles electric range: 5% band
- Shorter electric range: rates climb up to 19% as electric range falls below 30 miles
This is worth noting because from April 2028, that sliding scale disappears for hybrids in the 1–50g/km CO2 band, which are set to move to a single fixed rate in the high-teens — closing the gap that currently rewards long-range PHEVs.
Salary Sacrifice: Where EVs Have the Edge
Because the BIK rate for EVs is so low, salary sacrifice EV schemes have become one of the most tax-efficient benefits an employer can offer. An employee gives up gross salary in exchange for the car, avoiding income tax and NIC on that portion of pay, and only pays the low EV BIK rate on top. The combination of salary sacrifice plus a 4% BIK band is difficult for a petrol equivalent to match at any price point.
Comparison Table: BIK Rates by Vehicle Type (2026/27)
| Vehicle Type | BIK Rate 2026/27 | Rate Path to 2029/30 | Example Annual Tax (£46k car, 40% taxpayer) |
|---|---|---|---|
| Fully Electric (EV) | 4% | 5% → 7% → 9% | £736 |
| PHEV (130+ mile electric range) | 5% | Fixed rate expected from 2028 | ~£920 |
| PHEV (short electric range, <30 miles) | 19% | Fixed rate expected from 2028 | ~£3,496 |
| Petrol/Diesel (low emissions) | 17% | Rising ~1pt/year to cap | ~£3,128 |
| Petrol/Diesel (high emissions) | 37% | Cap of 39% by 2029/30 | ~£6,808 |
Figures are illustrative, based on published 2026/27 HMRC bands. Always confirm your car’s exact P11D value and CO2/electric-range certification before calculating.
Bottom Line
For 2026/27, an electric company car remains the clearest tax-efficient choice available to UK employees and employers, taxed at just 4% BIK against up to 37% for petrol or diesel. Even as the EV rate climbs to a confirmed 9% cap by 2029/30, the gap versus combustion vehicles stays wide enough that switching to electric is still the financially smart move for most company car drivers today.
