For the 2026/27 tax year, the Benefit-in-Kind (BiK) tax rate for pure electric vehicles (0 g/km CO2) is 4% of the vehicle’s P11D manufacturer list price. A higher-rate (40%) taxpayer driving an electric company car with an illustrative £44,000 P11D value pays just £704.00 per year (£58.67 per month) in company car tax, compared to over £5,800 annually for an equivalent diesel vehicle. Electric company cars incur £0 fuel benefit charge, and salary sacrifice arrangements on zero-emission models remain fully exempt from HMRC’s Optional Remuneration Arrangement restrictions.
Key EV Company Car Tax Facts (2026/27)
- Pure EV BiK Rate (0 g/km CO2): 4% in 2026/27 (stepping up from 3% in 2025/26 and rising to 5% in 2027/28).
- Plug-in Hybrid (PHEV) Rates: 4% to 16% depending on certified zero-emission pure electric range (130+ miles matches EV rate at 4%).
- Fuel Benefit Charge: £0 for pure electric cars — electricity is legally excluded from HMRC’s statutory definition of fuel under s149 ITEPA 2003.
- Salary Sacrifice OpRA Exemption: Electric cars under 75 g/km CO2 are exempt from Section 69B ITEPA 2003 salary sacrifice penalty rules; tax is charged solely on the 4% BiK value.
- Vehicle Excise Duty (VED): Zero-emission cars registered from 1 April 2025 pay £10 first-year VED, then standard annual rates plus the £425 Expensive Car Supplement for vehicles list-priced above £40,000.
Electric Company Car Tax: The Multi-Year Policy Roadmap
Corporate fleet procurement and employee company car choices operate on multi-year lease horizons, typically spanning three to four years. To provide absolute budgetary certainty for fleet managers and company directors, the Treasury confirmed a transparent, statutory multi-year trajectory for zero-emission company car taxation through to the end of the decade.
Company car tax is assessed on non-cash remuneration provided by an employer for private motoring. While the underlying calculation framework applies across all vehicles, zero-emission models benefit from preferential statutory percentages designed to decarbonise the UK road transport sector. If you require a foundational walkthrough of manufacturer list prices, optional accessories, and statutory payroll codes, see our master guide explaining how BiK is calculated.
The table below sets out the statutory BiK percentage trajectory for pure battery electric vehicles (BEVs) with zero tailpipe emissions across successive tax years:
| Tax Year | Statutory Pure EV BiK Rate | Annual Tax on £40,000 EV (20% Taxpayer) | Annual Tax on £40,000 EV (40% Taxpayer) | Employer Class 1A NI Rate |
|---|---|---|---|---|
| 2024/25 | 2% | £160.00 (£13.33/mo) | £320.00 (£26.67/mo) | 13.8% (£110.40) |
| 2025/26 | 3% | £240.00 (£20.00/mo) | £480.00 (£40.00/mo) | 15.0% (£180.00) |
| 2026/27 (Current) | 4% | £320.00 (£26.67/mo) | £640.00 (£53.33/mo) | 15.0% (£240.00) |
| 2027/28 | 5% | £400.00 (£33.33/mo) | £800.00 (£66.67/mo) | 15.0% (£300.00) |
| 2028/29 | 7% | £560.00 (£46.67/mo) | £1,120.00 (£93.33/mo) | 15.0% (£420.00) |
| 2029/30 | 9% | £720.00 (£60.00/mo) | £1,440.00 (£120.00/mo) | 15.0% (£540.00) |
Even as the rate rises to 7% in 2028/29 and 9% in 2029/30 under the confirmed post-Budget framework, the financial incentive remain extraordinary when contrasted with traditional internal combustion engine vehicles, which sit between 25% and 37% BiK.
Plug-in Hybrid (PHEV) BiK Bands: The Zero-Emission Range Factor
For plug-in hybrid electric vehicles emitting between 1 and 50 g/km of CO2, the statutory BiK percentage is not uniform. HMRC grades plug-in hybrids into five distinct tiers based on their officially certified pure electric driving range (tested under Worldwide Harmonised Light Vehicle Test Procedure, or WLTP standards).
Drivers opting for plug-in hybrids must examine the manufacturer’s official electric-only range certification, as falling across a band threshold can double the employee’s tax liability:
| Pure Electric Zero-Emission Range | 2025/26 BiK Rate | 2026/27 BiK Rate | 2027/28 BiK Rate | 2028/29 BiK Rate |
|---|---|---|---|---|
| 130 miles or more | 3% | 4% | 5% | 18% |
| 70 to 129 miles | 5% | 6% | 7% | 18% |
| 40 to 69 miles | 8% | 9% | 10% | 18% |
| 30 to 39 miles | 12% | 13% | 14% | 18% |
| Less than 30 miles | 15% | 16% | 17% | 18% |
Notice the critical divergence in 2028/29: all plug-in hybrid vehicles emitting 1 to 50 g/km will converge to a single 18% BiK rate regardless of their zero-emission range. This marks a decisive shift in Treasury policy, cementing pure battery electric vehicles as the only class retaining sub-10% tax rates into the next decade.
Tesla Worked Example: Calculating Actual Company Car Tax
To understand the exact payslip deductions an employee experiences, let us examine an illustrative worked scenario using a popular executive electric vehicle: a Tesla Model Y or Model 3 with a representative manufacturer P11D list value.
Illustrative Case Study: Tesla EV at £44,000 P11D Value (2026/27)
Note: The £44,000 P11D value is an illustrative retail benchmark for an executive long-range saloon or crossover, incorporating list price, factory options, and delivery fees. P11D values exclude first-year VED and first registration fees.
- Vehicle Model: Tesla Model Y / Model 3 Long Range (Illustrative)
- Official CO2 Emissions: 0 g/km (Pure Electric)
- Illustrative P11D Value: £44,000.00
- 2026/27 Statutory BiK Rate: 4%
- Taxable Benefit in Kind: £44,000 × 4% = £1,760.00 per year
Employee Annual and Monthly Tax Liability by Tax Band:
| Employee Marginal Tax Band | Statutory Tax Rate | Annual Tax Paid | Monthly Payslip Deduction |
|---|---|---|---|
| Basic Rate Taxpayer | 20% | £352.00 | £29.33 / month |
| Higher Rate Taxpayer | 40% | £704.00 | £58.67 / month |
| Additional Rate Taxpayer | 45% | £792.00 | £66.00 / month |
Employer National Insurance Cost: The employer is liable for Class 1A National Insurance on the taxable value at the secondary rate of 15.0%: £1,760 × 15.0% = £264.00 per year.
Electric vs Diesel Company Car: The Financial Contrast
To appreciate why company car fleets have overwhelmingly transitioned to electric mobility, examine a direct financial comparison between a pure electric vehicle and an equivalent premium diesel car sharing the exact same £44,000 P11D list value.
Consider an executive diesel saloon emitting 132 g/km of CO2. Under HMRC’s 2026/27 emissions tables, a diesel vehicle emitting 132 g/km incurs a baseline BiK rate of 31%, plus a mandatory 4% diesel supplement (unless certified to Euro 6d RDE2 standards). Even with RDE2 certification, a 130–134 g/km car sits at 31% to 33% BiK.
| Metric Comparison | Pure Electric Vehicle (EV) | Equivalent Diesel Vehicle | Annual Difference / Savings |
|---|---|---|---|
| Illustrative P11D Value | £44,000.00 | £44,000.00 | £0.00 (Identical list price) |
| CO2 Emissions | 0 g/km | 132 g/km | -132 g/km |
| 2026/27 Statutory BiK Rate | 4% | 33% | 29 percentage points lower |
| Taxable BiK Value | £1,760.00 | £14,520.00 | £12,760.00 lower benefit |
| Tax Paid (20% Basic Rate) | £352.00 / yr (£29.33/mo) | £2,904.00 / yr (£242.00/mo) | Save £2,552.00 / year |
| Tax Paid (40% Higher Rate) | £704.00 / yr (£58.67/mo) | £5,808.00 / yr (£484.00/mo) | Save £5,104.00 / year |
| Employer Class 1A NI (15.0%) | £264.00 | £2,178.00 | Employer saves £1,914.00 / yr |
| Total Combined Annual Tax & NI | £968.00 | £7,986.00 | Total saving: £7,018.00 / year |
For a higher-rate employee, driving the diesel company car costs £484.00 every month in income tax deductions, whereas the electric vehicle costs £58.67. Over a standard 36-month lease contract, the employee retains more than £15,300.00 in net take-home pay simply by selecting electric powertrain technology.
EV Salary Sacrifice vs Traditional Company Cars: What Is Different?
In modern corporate compensation packages, many professionals do not receive an employer-subsidised company car as a perk. Instead, employers offer an employee-funded electric vehicle salary sacrifice scheme. Understanding the legal and taxation differences between these two arrangements is critical to evaluating your overall remuneration.
Under a traditional company car scheme, the employer provides the car as a benefit on top of your existing salary, often requiring a contribution towards business mileage or private use. Under a salary sacrifice arrangement, you contractually agree to reduce your gross cash salary in exchange for your employer leasing an electric car on your behalf.
The Vital Section 69B ITEPA 2003 Exemption
Under standard UK employment tax rules introduced in Finance Act 2017, known as the Optional Remuneration Arrangements (OpRA) rules, when an employee sacrifices gross salary for a taxable benefit, HMRC taxes the higher of:
- The gross salary amount given up; or
- The statutory Benefit-in-Kind cash equivalent.
For example, if an employee sacrifices £6,000 of gross pay for a petrol car with a £4,000 BiK value, HMRC ignores the £4,000 BiK figure and taxes the full £6,000. This rule effectively killed salary sacrifice for petrol and diesel company cars.
However, Parliament carved out an explicit statutory exemption for ultra-low emission vehicles. Under Section 69B of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), cars with CO2 emissions of 75 g/km or less are completely exempt from OpRA. This means:
- You sacrifice gross salary pre-tax, eliminating Income Tax (20%, 40%, or 45%) and employee Class 1 National Insurance (8% or 2%) on the sacrificed sum.
- HMRC taxes you solely on the statutory 4% BiK value via your PAYE tax code.
- Your employer saves 15.0% secondary National Insurance on the sacrificed salary (often shared back to lower lease costs).
To calculate how salary sacrifice interacts with pension contributions, national insurance savings, and your take-home pay, model your exact figures using our interactive salary sacrifice calculator.
Fuel Benefit Charge: Why Electricity Is Legally Not Fuel
When an employer provides free petrol or diesel for private motoring in a traditional company car, HMRC levies a punishing Car Fuel Benefit Charge. For 2026/27, the fuel benefit multiplier is set at £28,200. Multiplying £28,200 by a car’s 33% BiK rate creates an additional taxable benefit of £9,306, costing a higher-rate taxpayer an extra £3,722.40 per year in tax.
In stark contrast, electric vehicles enjoy a complete exemption from the Fuel Benefit Charge. Under section 149 of the Income Tax (Earnings and Pensions) Act 2003, HMRC defines “fuel” as petrol, diesel, liquefied petroleum gas (LPG), and other combustible hydrocarbon fuels. Electricity is legally classified as a form of energy, not a fuel.
Consequently, the following tax advantages apply to electric motoring:
- Workplace Charging: If your employer installs EV charging points at the workplace, employees can charge their company or private electric cars 100% tax-free. There is no benefit-in-kind charge, regardless of the electricity volume consumed.
- Home Charging Re-imbursement: If you charge your company EV at home for business journeys, your employer can reimburse you tax-free using HMRC’s official Advisory Electricity Rate (AER). HMRC reviews the AER quarterly based on domestic energy price cap data.
- Public Charging Cards: Employers can provide public charging RFID cards or apps exclusively for company EV business mileage without triggering a fuel benefit charge.
Vehicle Excise Duty (VED) on Electric Cars: The 2025/26 and 2026/27 Overhaul
For over a decade, pure electric vehicles enjoyed a complete exemption from UK annual Vehicle Excise Duty (road tax), paying £0 per year. Following legislation enacted under the Finance Act, the zero-emission VED exemption expired on 1 April 2025.
Drivers and fleet managers operating electric company cars in 2026/27 must budget for the updated VED structure:
- First-Year VED Rate: Brand new electric vehicles registered on or after 1 April 2025 pay the lowest first-year rate of £10.
- Standard Annual Rate: From the second year of registration onwards, electric cars move to the standard annual flat rate applicable to petrol and diesel cars (currently £195 per year for 2025/26, indexed to inflation).
- Expensive Car Supplement: The most significant change affects luxury and long-range electric vehicles. Previously exempt, electric cars with a manufacturer list price (including options) exceeding £40,000 at first registration are subject to the Expensive Car Supplement. This adds an additional £425 per year for five consecutive years (from year two to year six of the vehicle’s lifespan).
In a company car or salary sacrifice arrangement, VED and the Expensive Car Supplement are virtually always paid by the fleet leasing provider or the employer as part of the vehicle’s maintenance and finance package. However, the supplement is factored into the monthly lease rate, meaning higher-priced EVs carry slightly higher lease deductions than sub-£40,000 models.
Strategic Takeaways for Drivers and Employers
Electric company cars represent the single most advantageous statutory tax shelter remaining in the UK tax code for employed professionals. By combining the 4% BiK rate with OpRA-exempt salary sacrifice, higher-rate and additional-rate earners can reduce their gross taxable income, regain child benefit allowances, and avoid the 60% marginal tax trap between £100,000 and £125,140 while driving a brand new vehicle.
Employers simultaneously curtail fleet operational costs, lower their carbon reporting metrics, and save 15.0% in secondary Class 1 National Insurance contributions on every sacrificed pound above the statutory threshold.
Frequently Asked Questions: Electric Company Car Tax
What is the BiK rate for electric cars in 2026/27?
The Benefit-in-Kind (BiK) rate for pure electric cars (0 g/km CO2) in 2026/27 is 4% of the vehicle’s manufacturer P11D value. The rate was 2% in 2024/25, 3% in 2025/26, and is scheduled under statutory Treasury roadmaps to rise to 5% in 2027/28, 7% in 2028/29, and 9% in 2029/30.
How much BiK company car tax will I pay on a Tesla in 2026/27?
Company car tax on a Tesla depends on its P11D list value and your personal Income Tax band. On an illustrative £44,000 P11D value at the 2026/27 4% BiK rate, the annual taxable benefit is £1,760. A 20% basic-rate taxpayer pays £352.00 per year (£29.33/month), a 40% higher-rate taxpayer pays £704.00 per year (£58.67/month), and a 45% additional-rate taxpayer pays £792.00 per year (£66.00/month).
How does company car tax compare between an electric car and a diesel car?
Electric cars incur dramatically lower tax than diesel cars of identical value. On a £44,000 vehicle, a pure EV incurs a 4% BiK rate (£1,760 taxable benefit), whereas an equivalent diesel car emitting 132 g/km incurs a 33% BiK rate (£14,520 taxable benefit). For a 40% higher-rate taxpayer, the electric car costs £704.00 per year compared to £5,808.00 for the diesel vehicle, saving £5,104.00 annually.
How does EV salary sacrifice work compared to a traditional company car?
In a traditional scheme, the employer provides the car as an additional perk. Under EV salary sacrifice, you contractually exchange gross cash salary to fund the lease. Because zero-emission cars are exempt from Optional Remuneration Arrangement (OpRA) rules under Section 69B ITEPA 2003, you save Income Tax and National Insurance on the sacrificed salary and pay tax solely on the tiny 4% BiK value.
Do you pay fuel benefit charge or car tax on electric company cars?
Pure electric cars incur £0 fuel benefit charge because HMRC legally defines electricity as energy rather than fuel under s149 ITEPA 2003. Employers can provide workplace charging completely tax-free. For Vehicle Excise Duty (road tax), electric cars registered after 1 April 2025 pay £10 in the first year, then the standard annual rate plus a £425 Expensive Car Supplement if list-priced over £40,000.
What are the BiK rates for plug-in hybrid cars in 2026/27?
For plug-in hybrids emitting 1 to 50 g/km CO2, the 2026/27 BiK rate is determined by pure electric range: 4% for 130+ miles electric range; 6% for 70 to 129 miles; 9% for 40 to 69 miles; 13% for 30 to 39 miles; and 16% for less than 30 miles. From 2028/29, all plug-in hybrids will move to a flat 18% BiK rate.