How benefit-in-kind tax works for electric cars, what the rates are through 2030, and whether a company car or car allowance is the better option.
The basics of benefit-in-kind tax and how it applies to company cars.
This guide explains electric company car tax, how the calculation works, and what the rates are through the end of the decade. When your employer provides you with a company car, HMRC treats it as a benefit in kind. You pay income tax on the value of that benefit. The calculation is straightforward: the car’s P11D value (list price including VAT and delivery) multiplied by the BiK percentage rate for that vehicle.
The BiK percentage depends on the car’s CO2 emissions. The electric car BiK rate is just 4% in 2026/27, while petrol and diesel cars are taxed at rates from 23% to 37% depending on their emissions. This difference is why electric company cars cost significantly less in tax than their combustion equivalents.
Your employer also pays tax on the benefit. They are liable for Class 1A National Insurance Contributions at 15% of the same taxable benefit value. For an electric car, this employer cost is much lower than for a petrol or diesel car with the same list price.
Based on a car with a P11D value (list price) of £40,000.
BiK rates: HMRC 2026/27. Tax and NIC rates: HMRC.
A basic rate taxpayer driving a £40,000 electric company car pays £26.67 per month in tax on the benefit. The same person driving a petrol car at the same price pays £220 per month. That is a difference of over £193 every month.
A higher rate taxpayer saves even more. The electric car costs £53.33 per month in tax compared to £440 for the petrol equivalent, a monthly saving of nearly £387.
The employer also benefits. Class 1A National Insurance on the electric car costs £240 per year compared to £1,980 for the petrol car, saving the business £1,740 per year per vehicle.
We plan to build a company car tax calculator to help you estimate your personal costs based on your vehicle and tax band.
Confirmed rates from HMRC, giving businesses and employees a clear roadmap through the rest of the decade.
The table below sets out the company car tax rates for electric and combustion vehicles. BiK rates 2026 onwards are confirmed by HMRC through to 2029/30, giving businesses and employees clarity over the planning horizon.
| Tax Year | Fully Electric (0g/km) | Petrol/Diesel (170g/km+) |
|---|---|---|
| 2025/26 | 3% | 33% |
| 2026/27 | 4% | 34% |
| 2027/28 | 5% | 35% |
| 2028/29 | 7% | 36% |
| 2029/30 | 9% | 37% |
Source: HMRC. Rates confirmed in the 2024 Autumn Budget and 2026 Spring Statement. Petrol/diesel column shows the rate for vehicles with CO2 emissions above 170g/km. Rates for lower-emission combustion vehicles start at 23% and vary by CO2 band.
For electric vehicles, one option is almost always more tax-efficient than the other.
Some employers offer a choice between a company car and a cash car allowance. With a car allowance, you receive additional salary and arrange your own vehicle. The allowance is taxed as income at your marginal rate, and you also pay National Insurance on it.
For electric vehicles, the company car option is almost always cheaper. A £6,000 annual car allowance for a higher rate taxpayer costs £2,400 in income tax plus £120 in employee NI, leaving £3,480. The same employee driving a £40,000 electric company car pays just £640 per year in BiK tax, with no additional NI liability on the benefit.
For petrol and diesel cars, the comparison is closer because the BiK rates are much higher. A petrol car at 33% BiK on a £40,000 car generates a £13,200 taxable benefit, which for a higher rate taxpayer means £5,280 in tax. In that case, a car allowance could be more attractive depending on the amount offered.
| Company Car (EV, 4% BiK) | Company Car (Petrol, 33% BiK) | Car Allowance (£6,000/year) | |
|---|---|---|---|
| Annual tax (higher rate 40%) | £640 | £5,280 | £2,400 |
| Employee NI (8%) | £0 | £0 | £480 |
| Total employee cost | £640 | £5,280 | £2,880 |
Illustrative figures based on a £40,000 P11D value and £6,000 annual allowance. Individual circumstances vary.
For electric vehicles, the company car wins clearly on tax efficiency. The 4% BiK rate means the tax charge is a fraction of what you would pay on a cash allowance. This is one of the strongest financial arguments for choosing an electric company car.
The employer’s obligations and costs when providing company cars.
Employers pay Class 1A National Insurance at 15% on the taxable benefit of every company car. For an electric car at 4% BiK on a £40,000 car, this costs £240 per year. For a petrol car at 33%, it costs £1,980 per year.
Employers must report company car benefits to HMRC on form P11D by 6 July following the end of each tax year. Alternatively, benefits can be payrolled, which removes the need to file P11D forms for those benefits.
When employees use a company car for business journeys, the employer can reimburse fuel costs tax-free up to HMRC’s advisory fuel rate. For electric cars, this is currently 7p per mile. Rates are reviewed quarterly.
If the business purchases (rather than leases) a zero-emission vehicle, it qualifies for 100% first-year capital allowances. The full cost can be deducted from taxable profits in the year of purchase.
More tools and guides for drivers and businesses going electric.
Common questions about company car tax and benefit-in-kind rates for electric vehicles.
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Ryan is the founder of Brumble and has over a decade of experience in the UK motor finance and insurance industry. He created Brumble to make it easier for UK drivers to understand the insurance and finance world by cutting through the jargon.
Originally published: 18 June 2026 · Last updated: 18 June 2026
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