A UK company car creates a taxable Benefit in Kind (BiK) equal to the car's manufacturer list price multiplied by an emission-based percentage. For 2026/27 the electric-car BiK rate is 3% (rising 1%/year); petrol/diesel bands range from 15% to 37%. The BiK amount is then taxed at your marginal Income Tax rate — 20% for basic-rate workers, 40% higher, 45% additional. Electric cars are exceptionally tax-efficient for higher-rate earners; a £45,000 EV costs ~£540/year in BiK vs ~£4,400 for an equivalent petrol.
Verified against 4 official sources · Last reviewed 14 June 2026
For your specific vehicle:
1. Take the manufacturer's UK list price (P11D value) — includes VAT + delivery
2. Multiply by the BiK % for your emission band (2026/27 rates below)
3. That's the "cash equivalent" — treated as extra income
4. Taxed at your marginal Income Tax rate
2026/27 BiK % by emission
CO2 (g/km)
BiK % 2026/27
0 (pure electric)
3%
1-50 (PHEV, high electric range)
6-14% depending on electric range
51-54
16%
55-59
17%
...each 5g/km adds 1%...
...
155+
37% (max)
Diesel non-RDE2 vehicles add 4% to the % (capped at 37%).
Worked example — Tesla Model 3
List price P11D: £42,000
Electric BiK: 3%
Cash equivalent: £42,000 × 3% = £1,260
Higher-rate tax on £1,260: £504/year (£42/month reduction in take-home)
Same driver in a £42,000 petrol BMW (emission ~30% BiK):
- Cash equivalent: £42,000 × 30% = £12,600
- Higher-rate tax: £5,040/year (£420/month reduction)
The electric car is ~£4,500/year better for the higher-rate driver.
When company car beats cash allowance
EVs at higher-rate: almost always company-car
Diesel/petrol at higher rate: usually cash-allowance better
Basic rate: either can work; depends on car choice + private mileage
Increasingly common. Employer leases the EV; you sacrifice gross salary to fund the lease. Tax + NI saved on the sacrificed amount + only 3% BiK on the car. Extremely tax-efficient for higher-rate + additional-rate workers.
In short
UK company car BiK is emission-band × list price × marginal rate. Electric = 3% (2026/27) making EVs exceptionally cheap as company cars. Petrol/diesel usually favour cash allowance instead.
Frequently asked questions
What's the 2026/27 electric car BiK rate?
3% — rising to 4% in 2027/28, 5% in 2028/29 per current HMRC published schedule.
How is company car tax deducted?
Via your tax code — HMRC reduces your personal allowance by the cash-equivalent, meaning the tax comes out of every payslip.
Do I pay NI on company car BiK?
Employees don't. Employers pay Class 1A NI at the current 13.8% rate on the cash-equivalent.
Can I sacrifice salary for the car?
Yes — EV salary sacrifice schemes are increasingly common. Very tax-efficient for higher-rate workers.
What if I get fuel too?
Additional 'fuel benefit' BiK applies — currently £27,800 × the emission % as an additional cash-equivalent. Fuel benefit rarely worth taking for most workers.
What is a P11D — The UK P11D form is submitted annually by employers to HMRC reporting all Benefits in Kind provided to employees. You get a copy showing your total BiK for the tax year. HMRC uses this to adjust your tax code and collect BiK tax.
More on related topics
Childcare vouchers — UK childcare vouchers closed to new joiners in October 2018 — existing users can continue. Tax-Free Childcare replaced it (£2,000/child/year government top-up). This guide covers both + which is better for your situation.
Company car vs allowance — UK company car is better than cash car allowance for electric vehicles (3% BiK) at higher-rate tax. Cash allowance is better for petrol/diesel cars at higher-rate. This guide covers the specific numbers.
Fuel benefit — UK company car fuel benefit is a flat £27,800 × emission % (2026/27). At higher rate on a 30% emission car that's ~£3,300/year tax — usually far more than the actual value of private fuel. Nearly always better to decline.
Salary sacrifice — An arrangement where you give up part of your gross salary in exchange for a non-cash benefit (most commonly pension contributions), reducing your Income Tax and National Insurance.
Sources
All figures on this page are sourced from official UK government publications.
We don't cite secondary commentary or other calculator sites.
All tax figures on this page use the same configuration that powers our
calculators — see our
editorial standards for the review process.
Last reviewed: 14 June 2026.
Next review due 14 December 2026.
Disclaimer: This page provides general information based on published HMRC and gov.scot figures. It is not personal tax or financial advice. For your specific situation, please consult a qualified accountant or contact HMRC directly.