| Formula | list price (plus accessories, minus capital contribution) x percentage |
| Electric car (0 g/km) | 4% in 2026/27, 5% from 2027/28 |
| Plug-in hybrid (1 to 50 g/km) | 4 to 16% depending on electric range |
| Combustion from 75 g/km | 21% plus 1 point per 5 g/km, at most 37% |
| Private fuel | percentage x £29,200 |
| Employer | 15% Class 1A, reporting by 6 July |
How the UK values a company car
If your employee may use the company car privately, that is a benefit in kind (BIK) in the UK. Private use includes the commute between home and work, except to a temporary workplace. A car used solely for business and genuinely not used privately is tax-free, as is a true pool car shared by several employees for business trips.
The taxable value comes in a few steps. The starting point is the car's list price, not the price paid and not the lease rental. Accessories are added, and whatever the employee paid towards the purchase is deducted. That sum is multiplied by the car's appropriate percentage. Periods when the car was unavailable reduce the value.
Your employee pays income tax on that value at their own rate, 20, 40 or 45 percent, collected through the tax code. You as employer pay 15 percent Class 1A National Insurance on it. The employee pays no National Insurance of their own on the car.
BIK rates for electric cars and hybrids: 2026/27 and 2027/28
The rates are set in law (section 139 of the Income Tax (Earnings and Pensions) Act 2003), fixed by the Finance Act 2023. The UK tax year runs from 6 April to 5 April.
| CO2 and electric range | 2026/27 | 2027/28 |
|---|---|---|
| 0 g/km (fully electric) | 4% | 5% |
| 1 to 50 g/km, range 130 miles or more | 4% | 5% |
| 1 to 50 g/km, range 70 to 129 miles | 7% | 8% |
| 1 to 50 g/km, range 40 to 69 miles | 10% | 11% |
| 1 to 50 g/km, range 30 to 39 miles | 14% | 15% |
| 1 to 50 g/km, range under 30 miles | 16% | 17% |
| 51 to 54 g/km | 17% | 18% |
| 55 to 59 g/km | 18% | 19% |
| 60 to 64 g/km | 19% | 20% |
| 65 to 69 g/km | 20% | 21% |
| 70 to 74 g/km | 21% | 21% |
| 75 g/km and above | 21% plus 1 point per 5 g/km above 75, at most 37% | as 2026/27 |
legislation.gov.uk: ITEPA 2003 s. 139 (version for 2026/27, as at 2 November 2026); Finance Act 2023 s. 11(5) to (8)
Electric, plug-in hybrid, diesel: what makes the difference
Electric cars are the cheapest choice at 4 percent in 2026/27 and 5 percent from 2027/28. After that the rate keeps rising: in Budget 2026 the government announced raising the rate for 2030/31 from 9 to 10 percent. Charging a fully electric company car you own or lease is tax-free for the employee and need not be reported.
For plug-in hybrids the electric range on the registration documents decides. Under 30 miles electric and you pay almost as much as for an economical petrol car. Hybrids registered from 1 January 2025 to 5 April 2028 that show 51 g/km or more under the new test procedure have a transitional rule: they are treated as 1 g/km, so by their range, if the registration does not show emission standard Euro 6d-ISC-FCM or Euro 6e.
Diesels pay a 4-point supplement unless they meet Euro 6d, also called Real Driving Emissions 2. A modern Euro 6d diesel is treated like petrol. HMRC's calculator distinguishes by fuel type: F for Euro 6d diesels, D for other diesels, A for all other cars.
An electric car with a £50,000 list price: 4 percent gives a £2,000 benefit. An employee in the 40 percent band pays £800 tax a year on it, you as employer £300 Class 1A. A petrol car with a £40,000 list price and 120 g/km: 21 percent plus 9 points gives 30 percent, so a £12,000 benefit, £4,800 tax for the employee and £1,800 Class 1A for you. Fund private fuel as well and 30 percent of £29,200 is added, a further £8,760 benefit.
Fuel, salary sacrifice, vans
If you pay for fuel for private journeys, a second benefit arises. It is a flat charge: the car's percentage times a fixed amount, £29,200 in 2026/27. How much fuel is actually used does not matter. The benefit only falls away if your employee pays for all private fuel themselves in the same tax year or reimburses you.
If the car is provided through salary sacrifice, a special rule applies: if the salary given up is higher than the value of the car and fuel, the salary sacrificed is taxed. Electric cars and cars up to 75 g/km are excepted and keep their normal, low value. That is why salary sacrifice schemes in the UK are today almost only of interest for electric cars and economical hybrids.
Vans have fixed amounts instead of percentages: the benefit for a van with private use is £4,170 in 2026/27, plus £798 for private fuel in the van.
Employer duties, and what changes in April 2027
Today you report company cars after the end of the tax year: by 6 July on a P11D per employee and on the P11D(b) summary, which also shows the Class 1A. Class 1A is paid by 22 July. Document the list price of every car, since it is the basis of the whole calculation.
From 6 April 2027 that changes. Company cars, fuel, vans and medical insurance must then be reported and taxed through payroll as you go, like salary itself; most other benefits follow in April 2028. The government has announced this and started the legislation. For globally mobile employees, such as secondees, you can apply for an exception. How UK payroll works in principle is in payroll and RTI, and what comes on top for secondees is in posting staff to the UK.
And vehicle tax in England?
UK vehicle tax, Vehicle Excise Duty, is a separate tax on the vehicle and has nothing to do with the benefit in kind. For cars registered since 1 April 2017, the first payment depends on CO2. From the second payment a flat £200 a year applies, for combustion, hybrid and electric cars alike.
Expensive cars pay a £440 a year supplement for five years: combustion cars with a list price over £40,000, electric cars over £50,000. How salary, company car and dividend interact for owner-directors is shown in salary or dividend.
Frequently asked questions about company cars in the UK
What is the BIK rate for electric cars in the UK?
4 percent in the 2026/27 tax year and 5 percent from 2027/28. For 2030/31 the government has announced 10 percent.
Does the purchase price or the list price count?
The list price. Discounts on purchase or a cheap lease do not reduce the benefit. A capital contribution by the employee is deducted.
Does the commute count as private use?
Yes, the journey between home and a permanent workplace is private in the UK. Only journeys to a temporary workplace count as business.
Is a car allowance better than a company car?
A car allowance is cash pay and taxed like salary, with National Insurance for employee and employer. For electric cars the company car is almost always cheaper thanks to the low percentage; for expensive combustion cars it can be different. We work it out case by case.
Does my employee have to tell HMRC about the car?
Anyone who receives or returns a company car should tell HMRC so the tax code is adjusted, even if the employer reports too. From April 2027 the tax runs through payroll anyway.
Sources: legislation.gov.uk: Income Tax (Earnings and Pensions) Act 2003, s. 139; legislation.gov.uk: Finance Act 2023, s. 11; legislation.gov.uk: ITEPA 2003, s. 121 (Berechnung); legislation.gov.uk: ITEPA 2003, s. 141 (Diesel); legislation.gov.uk: ITEPA 2003, s. 150 (Kraftstoff); GOV.UK: Van benefit charge and fuel benefit charges 2026 to 2027; GOV.UK: Expenses and benefits, company cars and fuel; GOV.UK: Calculate tax on employees' company cars; GOV.UK: Tax on company benefits; GOV.UK: Budget 2026; GOV.UK: Mandatory reporting of benefits in kind in RTI from April 2027; GOV.UK: Vehicle tax rates
