Providing electric cars as company vehicles can be an attractive perk for employees. Electric cars are seen as cutting-edge, innovative, and futuristic. Offering the use of electric vehicles may be a perk for luring top talent, enhancing employee happiness, and fostering a pleasant office environment.
In recent years, there have been notable shifts in the tax landscape concerning company cars. These changes have impacted the attractiveness of company cars for both employers and employees. Therefore, it becomes essential to examine the tax regulations surrounding company cars and assess whether electric vehicles present a more appealing option compared to traditional petrol or diesel counterparts.
Benefit-in-Kind Charges:
A company car provides advantages to the employee and is considered a benefit in kind for tax purposes which results in the following for an individual.
The employee normally pays Income Tax on the taxable value of the company-car benefit.
The employer normally pays Class 1A National Insurance at 15% for 2026/27 on the taxable value of the benefit.
For the 2026/27 tax year, employers that did not register to payroll benefits before 5 April 2026 must continue to report relevant benefits using form P11D and report Class 1A National Insurance on form P11D(b). These are due by 6 July 2027 following the end of the tax year.
Where benefits are payrolled, a P11D is generally not required for those payrolled benefits, although the employer still needs to report the Class 1A National Insurance liability through P11D(b).
Tax you will be paying on a company car:
To calculate the tax on a company car, first work out the car’s taxable benefit. This is broadly calculated by multiplying the car’s P11D value by its HMRC Benefit-in-Kind appropriate percentage. The employee then pays Income Tax on that taxable benefit at their applicable Income Tax rate.
Understanding the impact of emissions is especially significant when comparing the tax advantages of electric cars to those of petrol or diesel vehicles. Electric cars offer greater tax benefits due to their lower or zero emissions, which results in lower BiK rates. This incentivizes the use of electric vehicles as a greener and more tax-efficient option for company car users.
Calculating P11D Value:
The starting point for a company car’s P11D value is normally the manufacturer’s UK list price when the car was first registered. This generally includes VAT, delivery charges, number plates and qualifying accessories.
Optional and qualifying accessories are added to the value where required.
If the employee or director makes a capital contribution towards the cost of the car or qualifying accessories, up to £5,000 can be deducted when calculating the value used for the company-car benefit.
The car’s CO2 emissions, fuel type and, for certain cars producing 1–50g/km, its electric range are then used to determine the appropriate Benefit-in-Kind percentage. These factors determine the BIK percentage rather than the underlying P11D list value itself.
The final taxable benefit can also be affected by factors such as periods when the car was unavailable and qualifying payments made by the employee for private use.
Benefits of using electric vehicles:
Fully electric company cars continue to receive a significantly lower Benefit-in-Kind percentage than many higher-emission petrol or diesel cars. For the 2026/27 tax year, the appropriate percentage for a zero-emission company car is 4%, compared with 3% in 2025/26. Higher-emission company cars can have an appropriate percentage of up to 37%.
It is vital to remember that, as compared to completely electric vehicles, Hybrids are taxed using the same HMRC ‘appropriate percentage’ table, based on CO2 emissions and (for 1–50g/km cars) the vehicle’s electric range.
2026/27 Company Car Tax Rates
A complete list is available on the HMRC website. Work out the appropriate percentage for company car benefits (480: Appendix 2) – GOV.UK (www.gov.uk)
Electric and hybrid vehicle rates
| Engine type | CO2 emissions | Electric range | 2026/27 BIK percentage |
|---|---|---|---|
| Fully electric | 0g/km | — | 4% |
| Hybrid | 1–50g/km | 130 miles and above | 4% |
| Hybrid | 1–50g/km | 70–129 miles | 7% |
| Hybrid | 1–50g/km | 40–69 miles | 10% |
| Hybrid | 1–50g/km | 30–39 miles | 14% |
| Hybrid | 1–50g/km | Less than 30 miles | 16% |
Petrol vehicle rates
| Engine Type | CO2 Emissions (g/km) | Electric Mileage Range (miles) | Percentage Multiplier |
| Petrol | 100 to 104 | – | 26% |
| 105 to 109 | – | 27% | |
| 110 to 114 | – | 28% | |
| 115 to 119 | – | 29% | |
| 120 to 124 | – | 30% |
The value of the Benefit-in-Kind (BIK) is significantly influenced by the zero or very low emissions of electric vehicles and efficient hybrids as seen by the table above.
