Company Car Tax Explained (UK)

Company car tax is income tax on the benefit of having a company car for private use. The taxable benefit is the car's list price multiplied by a percentage set by its CO₂ emissions, and you pay tax on it at your income tax rate. In 2026/27 a fully electric car is taxed on 4% of its list price, and petrol and diesel cars on up to 37%.

Key takeaways

  • The taxable benefit is the car's list price × an appropriate percentage set by its CO₂ emissions.
  • In 2026/27 fully electric cars are taxed on 4%; petrol and diesel cars on 17% to 37%.
  • Plug-in hybrids of 1 to 50 g/km are taxed on 4% to 16%, depending on their electric range.
  • You pay income tax on the benefit at your own rate, usually through PAYE.
  • Small differences in emissions or list price can change the tax noticeably.
In this guide

How company car tax works

The taxable value of a company car, often called its BIK or cash equivalent, is worked out in steps:

  1. List price. HMRC uses the manufacturer's published UK price for the car on the day before it was first registered, including VAT and delivery, but not the first registration fee or vehicle tax. Optional extras fitted from new are added. This is often called the P11D value, after the form employers use to report it.
  2. Capital contributions. Anything you paid towards the car is taken off, up to £5,000.
  3. Appropriate percentage. The price is multiplied by a percentage set by the car's CO₂ emissions (and electric range for plug-in hybrids).
  4. Private use payments. Anything you pay your employer for private use is taken off.

The result is added to your income, and you pay income tax on it at your own rate: 20%, 40% or 45% in England, Wales and Northern Ireland, or the Scottish rates of 19% to 48% if you pay Scottish income tax. Your employer collects it through PAYE. Your employer also pays Class 1A National Insurance on the benefit, at 15% in 2026/27.

The 2026/27 percentages

For tax year 2026/27 (6 April 2026 to 5 April 2027), HMRC's table sets:

  • Fully electric (0 g/km): 4%
  • 1 to 50 g/km (plug-in hybrids), by electric range: 4% for 130 miles or more, 7% for 70 to 129, 10% for 40 to 69, 14% for 30 to 39, 16% under 30
  • 51 to 54 g/km: 17%
  • 55 to 74 g/km: 18% to 21%, rising 1% for each 5 g/km
  • 75 to 79 g/km: 21%
  • 80 g/km and above: 22%, rising 1% for each 5 g/km, to a maximum of 37% from 155 g/km

Diesel cars that do not meet the RDE2 emissions standard pay a further 4%, within the 37% maximum.

Worked examples

Each example is a car with a £40,000 list price, available all year. The tax is the benefit × your income tax rate, assuming the whole benefit falls in one tax band.

Fully electric car (4%): £40,000 × 4% = £1,600 benefit.

  • Basic-rate taxpayer (20%): £320 a year, about £27 a month
  • Higher-rate taxpayer (40%): £640 a year, about £53 a month
  • Additional-rate taxpayer (45%): £720 a year

Petrol car at 120 g/km (30%): £40,000 × 30% = £12,000 benefit.

  • Basic-rate taxpayer (20%): £2,400 a year
  • Higher-rate taxpayer (40%): £4,800 a year

If the benefit takes your income into a higher band, part of it is taxed at each rate. For example, an employee in England earning £50,000 with the £1,600 electric car benefit pays £586 more tax a year, because the benefit pushes £1,330 of income into the 40% band. Above £100,000, the benefit can also reduce your Personal Allowance, which increases the tax further.

Because of the 4% rate. Over a year, the £40,000 electric car above costs a higher-rate taxpayer £640 in tax, against £4,800 for the petrol car. That gap is why many employers offer electric cars and why most salary sacrifice car schemes focus on them.

Electric cars are not tax-free, though, and the percentage is set each tax year, so check the rate for the years you will have the car.

Plug-in hybrids and diesels

For plug-in hybrids, the official electric range matters as much as the CO₂ figure: a car of 1 to 50 g/km is taxed on anything from 4% to 16% depending on its range.

Diesel cars that do not meet the RDE2 standard pay 4% more than an equivalent petrol car, up to the 37% maximum. Ask the supplier or your employer whether the car meets RDE2.

Free fuel for private use

If your employer pays for fuel you use privately, a separate car fuel benefit charge applies on top of the car benefit, and it can be large. This guide does not cover it; ask your employer how it is worked out for your car.

Before you decide

The tax is only part of the cost. If you are choosing between a company car and a cash allowance or salary sacrifice, compare what each costs you after tax, and include running costs. Salary sacrifice vs company car sets out the differences, and the Total Car Cost Calculator adds up the running costs.

FAQs

What is BIK?
Benefit in kind (BIK) is a benefit you receive from your employer that is not paid as cash, such as a company car. Its taxable value is added to your income for tax.
Do electric cars pay company car tax?
Yes, at a much lower rate. In 2026/27 a fully electric company car is taxed on 4% of its list price.
Is company car tax paid monthly?
Usually yes. Your employer collects it through PAYE, so it comes out of your pay each month.
Can I reduce my company car tax?
Choosing a car with lower CO₂ emissions, a longer electric range (for plug-in hybrids) or a lower list price reduces it. A capital contribution of up to £5,000, or paying your employer for private use, also reduces the taxable benefit.

Figures use 2026/27 rates and assume the car is available all year and your salary is your only income. Free private fuel, cars unavailable for part of the year and other special cases change the result. This guide is general guidance, not tax advice.

Sources and review

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