Key takeaways
- Company car tax is based on the car's list price multiplied by a percentage set by its CO2 emissions and, for hybrids, electric range.
- Fully electric cars are taxed at 4% in 2026/27, rising to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
- Petrol and diesel cars range up to 37%, and diesels that do not meet the RDE2 standard pay a 4% supplement within that cap.
- Free private fuel is taxed separately, on £29,200 multiplied by the car's percentage, so it rarely pays.
- Employers pay Class 1A National Insurance at 15% on the same taxable value.
If your employer provides a car that you can use privately, including for commuting, you pay tax on it as a benefit in kind. The amount depends on the car’s list price, its emissions and your tax rate. Since electric cars attract very low rates, the choice of car can change the tax bill by thousands of pounds a year.
How company car tax is worked out
- Take the car’s list price when new, including VAT, delivery and factory-fitted options, but not the first registration fee or vehicle excise duty. It is the list price, not what the employer paid.
- Deduct any capital contribution you made towards the car, up to £5,000.
- Multiply by the appropriate percentage for the car’s CO2 emissions and electric range.
- Reduce the result if the car was unavailable for part of the year, and by any amount you pay your employer for private use.
- Pay tax on the result at your marginal rate: 20%, 40% or 45% (or Scottish rates).
Appropriate percentages for 2026/27 to 2029/30
Electric and low-emission cars
| CO2 (g/km) | Electric range | 2026/27 | 2027/28 | 2028/29 | 2029/30 |
|---|---|---|---|---|---|
| 0 | Not applicable | 4% | 5% | 7% | 9% |
| 1 to 50 | 130 miles or more | 4% | 5% | 18% | 19% |
| 1 to 50 | 70 to 129 miles | 7% | 8% | 18% | 19% |
| 1 to 50 | 40 to 69 miles | 10% | 11% | 18% | 19% |
| 1 to 50 | 30 to 39 miles | 14% | 15% | 18% | 19% |
| 1 to 50 | Under 30 miles | 16% | 17% | 18% | 19% |
From 2028/29 the electric range bands for hybrids are removed and all cars emitting 1 to 50g/km move to a single rate. A temporary easement deems some plug-in hybrids registered from 2025 to emit 1g/km for these purposes until April 2028, to offset the effect of new emissions testing standards.
Petrol and diesel cars, 2026/27
| CO2 (g/km) | Percentage |
|---|---|
| 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% |
| 90 to 94 | 24% |
| 100 to 104 | 26% |
| 110 to 114 | 28% |
| 120 to 124 | 30% |
| 130 to 134 | 32% |
| 140 to 144 | 34% |
| 150 to 154 | 36% |
| 155 and over | 37% (maximum) |
The percentage rises by one point for each 5g/km between the bands shown. Diesel cars that do not meet the RDE2 emissions standard add a 4% supplement, still capped at 37%.
Worked examples for 2026/27
Electric car
An employee has an electric car with a list price of £45,000. Taxable benefit: £45,000 × 4% = £1,800.
| Taxpayer | Annual tax |
|---|---|
| Basic rate (20%) | £360 |
| Higher rate (40%) | £720 |
Petrol car
A petrol car with a list price of £35,000 and emissions of 132g/km uses 32%. Taxable benefit: £35,000 × 32% = £11,200.
| Taxpayer | Annual tax |
|---|---|
| Basic rate (20%) | £2,240 |
| Higher rate (40%) | £4,480 |
The employer also pays Class 1A NI at 15%: £270 on the electric car and £1,680 on the petrol car.
Fuel benefit
If your employer pays for fuel for private journeys, including commuting, there is a separate fuel benefit charge: £29,200 × the car’s appropriate percentage for 2026/27. For the petrol car above, that is £29,200 × 32% = £9,344, costing a higher rate taxpayer £3,737.60 a year in tax. Unless your private mileage is very high, it is usually cheaper to pay for your own private fuel and claim business mileage.
To avoid the charge you must reimburse your employer for all private fuel. Electricity is not a fuel for this purpose, so charging an electric company car at work does not create a fuel benefit.
Pool cars and vans
- A genuine pool car, used by more than one employee, kept at the employer’s premises overnight and with only incidental private use, is not taxable.
- Vans are taxed differently: a flat £4,170 benefit in 2026/27 if there is private use beyond commuting, plus £798 if fuel is provided. Zero-emission vans have a nil van benefit.
Salary sacrifice cars
Electric cars are often offered through salary sacrifice. Because cars with emissions above 75g/km are caught by rules that tax the higher of the salary given up and the benefit value, the arrangements mainly suit electric and very low emission cars, where the employee is taxed on the low benefit value and saves tax and NI on the salary given up. See salary sacrifice explained.
Reporting and paying
Employers currently report company cars on the P11D or payroll them; from 6 April 2027 company cars and fuel must be payrolled. See benefits in kind and P11D. Employees should check their tax code includes the right car details, and tell HMRC if they hand back a car.
Frequently asked questions
What is the BIK rate for electric cars in 2026/27?
4%. It rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
How is company car tax calculated?
List price × appropriate percentage × your tax rate. A £30,000 car at 25% costs a basic rate taxpayer £1,500 a year (£30,000 × 25% × 20%).
Is free fuel for a company car worth it?
Rarely. The fuel benefit is £29,200 × the car’s percentage, so it only pays if you drive a large number of private miles.
Do I pay tax on a company car I only use for commuting?
Yes. Commuting counts as private use. Only genuine pool cars with incidental private use are exempt.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.