Electric Company Cars: The BIK Tax Rates That Make EVs the Smart Choice

A fully electric company car is taxed on just 4% of its list price as a benefit in kind for 2026/27, compared with up to 37% for an equivalent petrol or diesel car, which is why an EV remains the most tax-efficient way for a company director to drive a car through their business. The company car tax benefit in kind 2026 rate for zero-emission vehicles is set in legislation and rises only gradually, giving directors rare long-term certainty. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, regularly models EVs against a cash car allowance for limited company owners. This guide explains how benefit-in-kind tax is calculated, the current EV rates, P11D reporting, and when a car allowance may still be the better choice.

Key Takeaways

• The benefit-in-kind rate for a fully electric company car is 4% of the P11D value in the 2026/27 tax year.
• Petrol and diesel company cars can attract benefit-in-kind rates of up to 37%, depending on CO2 emissions.
• The electric car benefit-in-kind rate rises to 5% in 2027/28 and continues climbing to a capped 9% by 2029/30.
• The taxable benefit is the P11D value multiplied by the BIK percentage, then taxed at your income tax rate of 20%, 40% or 45%.
• Employers pay Class 1A National Insurance at 15% on the taxable benefit for 2026/27.
• A cash car allowance is taxed as normal salary, so it is often less tax-efficient than an electric company car.

How is company car benefit-in-kind tax calculated in 2026/27?

Company car benefit-in-kind tax is calculated by multiplying the car's P11D value by a percentage set according to its CO2 emissions, then applying your marginal income tax rate to the result. The P11D value is broadly the list price including VAT, delivery and most optional extras, but excluding the first registration fee and road tax. For a fully electric car, the BIK percentage is 4% in 2026/27, so the taxable benefit is small relative to the vehicle's cost. The employee or director pays income tax on that benefit at 20%, 40% or 45%. This structure is why the company car tax benefit in kind 2026 outcome is so favourable for electric vehicles: a low percentage applied to the full list price still produces a modest taxable figure.

What are the electric car BIK rates for 2026/27 and beyond?

The electric car benefit-in-kind rate in the UK is 4% for 2026/27, rising to 5% in 2027/28, then increasing to reach a capped 9% by 2029/30. These rates were confirmed to give drivers and employers long-term planning certainty, and they remain far below the rates for combustion-engine cars. A petrol or diesel car with high emissions can sit at the 37% ceiling, meaning its taxable benefit is more than nine times higher than an equivalent EV in 2026/27. Even as EV rates edge upward, the gap remains substantial. For a company director choosing a vehicle now, locking into the low electric car benefit in kind UK rate for several years is a meaningful, predictable saving. For the full picture, see our guide to P11D reporting.

Worked example: the tax on an electric company car

Consider a director provided with a fully electric company car with a P11D value of £45,000 in 2026/27. The taxable benefit is £45,000 multiplied by 4%, which is £1,800. As a higher rate taxpayer at 40%, the director pays £720 in income tax for the year, or about £60 per month. The company pays Class 1A National Insurance at 15% on the £1,800 benefit, which is £270. By contrast, a petrol car with the same £45,000 list price at the 37% BIK rate would create a taxable benefit of £16,650, costing a 40% taxpayer £6,660 a year. The electric car saves the director roughly £5,940 in personal tax annually, before considering the company's lower National Insurance and the availability of a 100% first-year capital allowance on a new EV.

How do you report a company car on a P11D?

A company car provided to a director or employee must be reported to HMRC on form P11D after the end of each tax year, with the filing deadline of 6 July following the 5 April year end. The P11D records the car's benefit-in-kind value, and the employer pays the associated Class 1A National Insurance by 22 July. Alternatively, the benefit can be payrolled, meaning the tax is collected through PAYE across the year rather than reported after it. Mandatory payrolling of most benefits in kind has been deferred to April 2027, so for 2026/27 payrolling remains voluntary and limited company owners should confirm which method their company uses. Accurate P11D reporting matters because errors on a BIK company car can trigger HMRC interest and penalties.

A company car sits alongside salary and dividends in a director's overall package, and our guide to director salary and dividend strategy shows how the pieces fit together.

Is a car allowance more tax-efficient than an electric company car?

A cash car allowance is usually less tax-efficient than an electric company car because the allowance is treated as additional salary and taxed in full at your income tax rate, with National Insurance also due. A £6,000 car allowance for a 40% taxpayer suffers £2,400 in income tax plus employee National Insurance, leaving well under £3,600 to fund the car. The electric company car alternative taxes only 4% of the list price, so the same driver retains far more spending power. A car allowance can still suit those who want ownership flexibility, drive very high private mileage, or prefer a vehicle the company would not otherwise buy. For most limited company owners choosing an EV, though, the company car route wins comfortably in 2026/27.

Frequently Asked Questions

How much tax will I pay on an electric company car in 2026/27?

You pay income tax on 4% of the car's P11D value in 2026/27. For a £45,000 electric car, the taxable benefit is £1,800, costing a 20% taxpayer £360 a year and a 40% taxpayer £720 a year. The rate rises to 5% in 2027/28, so the cost increases only modestly year on year.

What is the electric car benefit-in-kind rate after 2026/27?

The electric car benefit-in-kind rate is 4% in 2026/27, 5% in 2027/28, and continues rising to a capped 9% by 2029/30. These rates are set in advance to give drivers certainty. Even at 9%, an electric car remains far cheaper to tax than a petrol or diesel car, which can reach a 37% benefit-in-kind rate.

Does my company get tax relief on buying an electric car?

Yes, a company buying a new, unused fully electric car can claim a 100% first-year capital allowance, deducting the full cost from taxable profits in the year of purchase. This is in addition to the low benefit-in-kind charge on the driver. Combined, the first-year allowance and the 4% BIK rate make an EV highly tax-efficient for a limited company in 2026/27.

Do I pay National Insurance on a company car benefit in kind?

The employee does not pay National Insurance on a company car benefit, but the employer pays Class 1A National Insurance at 15% on the benefit value for 2026/27. On an £1,800 electric car benefit, the company's Class 1A charge is £270. This employer cost is far lower for an EV than for a high-emission petrol or diesel car.

Is a car allowance better than a company car for a director?

A car allowance is usually less tax-efficient than an electric company car because the allowance is taxed as salary at your full income tax rate, with National Insurance also due. An electric company car is taxed on only 4% of its list price in 2026/27. A car allowance mainly suits directors wanting ownership flexibility or very high private mileage.

How Blue Tick Can Help

Blue Tick Accountants helps limited company owners model an electric company car against a cash allowance, calculate the exact benefit-in-kind charge, and file P11D or payrolled benefit reports correctly. A short company car tax review can confirm whether an EV, combined with the first-year capital allowance, is the most efficient route for your specific circumstances. Head to our website and book a meeting now.

Conclusion

An electric company car remains the standout tax choice for directors in 2026/27, taxed on just 4% of its list price while petrol and diesel cars reach 37%. With rates rising only gradually to a capped 9% by 2029/30, and a 100% first-year allowance on new EVs, the numbers are compelling and predictable. Model the EV against a car allowance for your own income level, then report the benefit accurately on a P11D or through payroll to stay compliant.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners and directors across the UK plan tax-efficient remuneration and benefits. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: P11D Reporting for Company Cars: A Practical Guide for Employers.