Company Cars and Electric Vehicles: Tax for Directors (2026/27)

Why a company car is taxed as a benefit

If your limited company provides you with a car that is also available for private use (which includes ordinary commuting), HMRC treats this as a Benefit in Kind (BIK) — effectively a form of non-cash pay, taxed alongside your salary through your tax code. The company also pays Class 1A National Insurance on the same benefit value. This is why the choice of company car — and increasingly, whether it is electric — has become a genuine tax planning decision rather than just a lifestyle one.

How the Benefit in Kind is calculated

The taxable value of a company car benefit is broadly calculated as:

P11D value (list price, including most factory options, VAT, and delivery) × the car's BIK percentage (set by its CO2 emissions and, for the lowest-emission cars, electric range) = the taxable benefit value

You then pay Income Tax on that benefit value at your marginal rate (20%, 40%, or 45%), and the company pays Class 1A National Insurance on the same figure. A car with a higher list price or a higher BIK percentage produces a larger taxable benefit — and a correspondingly larger tax bill — for exactly the same private use.

Electric vehicles — the standout incentive

Fully electric company cars are taxed far more lightly than petrol, diesel, or hybrid equivalents. HMRC set out a multi-year schedule of low BIK percentages for zero-emission cars specifically to encourage the switch to electric, with the percentage rising gradually each tax year rather than jumping straight to a higher rate.

The exact BIK percentage confirmed for zero-emission cars in 2026/27 should be checked directly against the current HMRC company car tax tables before making a purchasing decision — this is a figure that has been set out in advance for several years running, but fiscal events can and do revise announced future rates, so treat any specific percentage you see quoted (including in older articles) as needing a same-day check against gov.uk rather than as settled.

Even allowing for that caveat, the structural point holds firmly: electric company cars sit at the very bottom of the BIK scale, while petrol and diesel cars are taxed on a sliding scale that runs from the low double digits up to a cap of 37% of list price for the highest-emission vehicles. For a company car user considering their options, that gap is large enough to be the deciding factor before even weighing running costs.

Petrol, diesel and hybrid cars

Non-electric cars are taxed according to their official CO2 emissions figure — the higher the emissions, the higher the BIK percentage, up to the 37% cap for the most polluting vehicles. Plug-in hybrids sit between pure electric and combustion cars, with their BIK percentage depending on both CO2 emissions and their electric-only range — a hybrid with a longer electric range attracts a lower percentage than one with a short one. Because this scale is reviewed and can shift, always check a specific model's current BIK percentage using its CO2 figure and HMRC's published tables rather than relying on a rate from a previous year's purchase decision.

Charging costs and how they are treated

Electricity used to charge a company-provided electric car is not treated as a taxable fuel benefit in the way petrol or diesel is. Where a business reimburses electricity costs for business mileage in a company EV, the relevant advisory electricity rate applies — see our guide to current mileage and fuel rates for the home-charging and public-charging rates for 2026/27. Providing a workplace charging point for employees also carries its own specific tax exemption, separate from the car benefit itself.

Salary sacrifice EV schemes

Many small companies offer an electric car through a salary sacrifice arrangement, where the employee gives up part of their gross salary in exchange for the car. Because the EV benefit percentage is so low, this can still work out favourably for the employee compared with buying or leasing a car personally out of taxed income — but the arrangement needs setting up correctly (including its interaction with pension contributions, statutory pay, and the optional remuneration rules) to avoid unexpected tax treatment. This is worth structuring with your accountant or payroll provider rather than adopting a generic template.

What to check before choosing a company car

• Confirm the current-year BIK percentage for the specific model and CO2/electric-range figures directly on gov.uk or with your accountant — do not rely on a percentage quoted in a previous year's article or brochure
• Compare the P11D value, not just the on-the-road price, since options and delivery can push it up
• Check whether the car is genuinely available for private use — if it is only ever used for business journeys with no private use at all (a narrow test in practice), different rules can apply
• Factor in Class 1A employer National Insurance on the benefit value as a company cost, not just the Income Tax hit to the director personally

Note: this article explains how company car and EV Benefit in Kind tax generally works. QaisYasir Accounting Services' current service scope is bookkeeping, VAT/MTD, and management accounts — for a specific BIK calculation, P11D reporting, or salary sacrifice structuring, work with a qualified accountant.