TL;DR: Company car tax is changing, with the Benefit in Kind (BiK) rate for electric vehicles set to rise to 4% for the 2026/27 tax year. Despite this increase from the current low rates, choosing an electric car remains by far the most tax-efficient option compared to petrol or diesel alternatives.
Is your company car about to cost you more?
Getting a company car feels like a huge win, but are you ready for the upcoming tax changes? Understanding the rules for company car tax in 2026 is crucial to avoid a nasty surprise on your payslip. This tax, known officially by HMRC as Benefit in Kind (BiK), applies to the personal use of your work vehicle, and the rates are on the move.
Key Facts
- 4%: From the 2026/27 tax year, the Benefit in Kind (BiK) tax rate for zero-emission electric vehicles will increase to 4%.
- 1st April 2025: From this date, electric vehicles lost their exemption and became liable for Vehicle Excise Duty (VED), also known as road tax, for the first time.
- P11D Value: The P11D value used for tax calculations is the car's list price including VAT and optional extras, but it excludes the first-year registration fee.
What is company car tax?
A Benefit in Kind tax is a charge on the 'benefit' you receive from having a company car available for personal use, like doing the school run or popping to the shops. I’ve seen plenty of drivers get caught out because they didn't realise how these small percentage shifts can eat into their take-home pay.
It’s important not to confuse this with a salary sacrifice scheme. When weighing up salary sacrifice vs company car options, remember that with a salary sacrifice you are paying for the car's finance from your gross wages. A true company car just requires you to cover the BiK tax and your personal fuel. And if the car stays locked in the office car park every night and is used only for business trips? You won't owe a penny.
How to calculate your company car tax bill
So, how do you work out the damage for the 2026/27 tax year? Honestly, it’s just a bit of simple maths once you have three key figures. The calculation for your annual tax bill is:
(P11D Value) x (BiK Percentage Rate) x (Your Income Tax Rate)
1. Your Income Tax Band: This is usually 20% (basic rate) or 40% (higher rate) for most employees in the UK.
2. The P11D Value: The P11D value calculation is based on the car’s list price, including VAT and any delivery charges or optional extras like a panoramic sunroof. It doesn't include the first registration fee.
3. The BiK Percentage: This is the crucial figure set by the government. The BiK percentage bands for 2025/26 and beyond are based on the car’s CO2 emissions, with cleaner cars having a much lower rate. You can find the full list in the HMRC company car tax tables.
Petrol, diesel (RDE2 compliant) and hybrid-powered cars for tax years 2025/26
| CO2 emissions (grams per km) | Electric mileage range | BiK % |
|---|---|---|
| 0 | — | 3 |
| 1 to 50 | 130 and above | 3 |
| 1 to 50 | 70 to 129 | 6 |
| 1 to 50 | 40 to 69 | 9 |
| 1 to 50 | 30 to 39 | 13 |
| 1 to 50 | less than 30 | 15 |
| 51 to 54 | — | 16 |
| 55 to 59 | — | 17 |
| 60 to 64 | — | 18 |
| 65 to 69 | — | 19 |
| 70 to 74 | — | 20 |
| 75 to 79 | — | 21 |
| 80 to 84 | — | 22 |
| 85 to 89 | — | 23 |
| 90 to 94 | — | 24 |
| 95 to 99 | — | 25 |
| 100 to 104 | — | 26 |
| 105 to 109 | — | 27 |
| 110 to 114 | — | 28 |
| 115 to 119 | — | 29 |
| 120 to 124 | — | 30 |
| 125 to 129 | — | 31 |
| 130 to 134 | — | 32 |
| 135 to 139 | — | 33 |
| 140 to 144 | — | 34 |
| 145 to 149 | — | 35 |
| 150 to 154 | — | 36 |
| 155 to 159 | — | 37 |
| 160 to 164 | — | 37 |
| 165 to 169 | — | 37 |
| 170 and above | — | 37 |
What are the Benefit in Kind tax rates for 2026/27?
This is where things are changing. For anyone looking at electric company car tax in the UK, the rate is creeping up. For the 2026/27 tax year, the BiK rate for a fully electric vehicle will be 4%.
Let’s put that into perspective. A £40,000 electric car would have a taxable value of £1,600 (£40,000 x 4%). If you’re a 20% taxpayer, you’re looking at a yearly bill of £320. That works out to just under £27 a month—still an absolute bargain compared to a traditional petrol car.
Petrol, diesel (RDE2 compliant) and hybrid powered cars for tax years 2026/27
| CO2 emissions (grams per km) | Electric mileage range | BiK % |
|---|---|---|
| 0 | — | 4 |
| 1 to 50 | 130 and above | 4 |
| 1 to 50 | 70 to 129 | 7 |
| 1 to 50 | 40 to 69 | 10 |
| 1 to 50 | 30 to 39 | 14 |
| 1 to 50 | less than 30 | 16 |
| 51 to 54 | — | 17 |
| 55 to 59 | — | 18 |
| 60 to 64 | — | 19 |
| 65 to 69 | — | 20 |
| 70 to 74 | — | 21 |
| 75 to 79 | — | 21 |
| 80 to 84 | — | 22 |
| 85 to 89 | — | 23 |
| 90 to 94 | — | 24 |
| 95 to 99 | — | 25 |
| 100 to 104 | — | 26 |
| 105 to 109 | — | 27 |
| 110 to 114 | — | 28 |
| 115 to 119 | — | 29 |
| 120 to 124 | — | 30 |
| 125 to 129 | — | 31 |
| 130 to 134 | — | 32 |
| 135 to 139 | — | 33 |
| 140 to 144 | — | 34 |
| 145 to 149 | — | 35 |
| 150 to 154 | — | 36 |
| 155 to 159 | — | 37 |
| 160 and above | — | 37 |
Should you still choose an electric company car?
In my opinion, absolutely. Even though the 'free ride' for EVs is winding down, the financial case remains incredibly strong. A key change to be aware of is the VED rates for electric vehicles; from April 2025, they will start paying standard road tax.
But wait, don't let that put you off. While the electric car BiK rate for company car tax 2026 sits at 4%, a thirsty petrol or diesel model could have a rate as high as 37%. The gap is enormous. If you can charge at home and the range fits your lifestyle, staying electric is still the smartest move for your bank balance.