If your employer provides you with a car that is available for private use, you pay tax on the Benefit in Kind (BIK) value. The amount depends on the car’s list price, its CO2 emissions, and your personal tax rate. Electric cars currently enjoy very low BIK rates, making them the most tax-efficient company car option.
How the Tax Is Calculated
The taxable benefit is:
P11D value × BIK percentage rate = taxable benefit
Then: taxable benefit × your marginal tax rate = annual tax payable
The P11D value is the car’s list price (including options and delivery) minus the first year’s Vehicle Excise Duty and the registration fee. It is the manufacturer’s list price, not what your employer actually paid. For a full breakdown of how the P11D value is built up — including the £5,000 capital contribution cap and the 2026/27 BIK bands — see our guide to the P11D value of a car explained.
BIK Percentage Rates (2025/26)
BIK rates are set by the car’s CO2 emissions:
| CO2 Emissions (g/km) | BIK Rate |
|---|---|
| 0 (pure electric) | 3% |
| 1–50 (depending on electric range) | 3%–15% |
| 51–54 | 16% |
| 55–59 | 17% |
| 60–64 | 18% |
| 65–69 | 19% |
| 100–104 | 26% |
| 130–134 | 32% |
| 150–154 | 36% |
| 155+ | 37% (maximum) |
The maximum BIK rate of 37% is reached at 155 g/km and applies to everything above that too. These standard (51g/km+) bands are frozen at the same percentages for 2025/26, 2026/27, and 2027/28 — only the sub-51g/km electric/plug-in-hybrid bands keep rising year by year (see below).
Example: Petrol vs Electric
Petrol car with a P11D value of £35,000 and CO2 of 120 g/km (BIK rate 30%, the 120–124 g/km band):
- Taxable benefit: £35,000 × 30% = £10,500
- Tax at 40% (Higher Rate): £4,200 per year (£350/month)
Electric car with a P11D value of £35,000 and 0 CO2 (BIK rate 3%):
- Taxable benefit: £35,000 × 3% = £1,050
- Tax at 40%: £420 per year (£35/month)
The electric car saves the Higher Rate taxpayer nearly £3,800 per year in tax.
Compare your company car Company Car Tax Calculator EV 3%->4% BIK, P11D value, CO2 bands, diesel surcharge Open →Employer National Insurance
Employers also pay Class 1A NI at 15% on the BIK value. For the petrol car above, that is £10,500 × 15% = £1,575 per year. For the electric car, it is just £1,050 × 15% = £157.50. This is why many employers actively encourage the switch to electric company cars.
Fuel Benefit
If your employer also pays for your private fuel, there is an additional taxable benefit. For 2025/26, the fuel benefit multiplier is £28,200 (rising to £29,200 for 2026/27), applied at the same BIK percentage rate. For the petrol car example: £28,200 × 30% = £8,460 taxable benefit. This charge is so high that unless your private mileage is very substantial, it is usually better to pay for your own fuel and avoid the charge entirely.
Electric cars charged at the workplace are exempt from the fuel benefit charge, and employer-provided charging is not a taxable benefit.
Salary Sacrifice Car Schemes
Many employers now offer cars through salary sacrifice arrangements, where you give up part of your gross salary in exchange for a company car. Combined with the low BIK rates on electric vehicles, this can be a very cost-effective way to drive a new electric car — often cheaper than buying privately.
Key Takeaway
The UK tax system now strongly incentivises electric company cars through BIK rates that are a fraction of those for petrol and diesel vehicles. If you are offered a company car or considering a salary sacrifice scheme, compare the after-tax cost of electric versus combustion options — the savings are substantial.
Sources
- GOV.UK — Tax on company benefits: company cars
- GOV.UK — Company car benefit: appropriate percentage (480 Appendix 2) — 2025-26 CO2 band table used for the rates above
- HMRC EIM — Fuel benefit charge for company cars (EIM24500)