Company Car Tax (BIK) 2026/27 — Rates & Bands

UK company car tax 2026/27 — how Benefit-in-Kind (BIK) is calculated, the 4% EV rate, CO2-based percentages, and why EVs save higher-rate drivers thousands.

If your employer provides a company car you can use privately, HMRC taxes that benefit as income — the “Benefit-in-Kind” or BIK charge. For a petrol car this can cost higher-rate drivers £4,000-£10,000/year in extra tax; for a pure electric car in 2026/27 the same driver pays a few hundred. This guide walks through the 2026/27 BIK rates, shows the calculation, and explains why EV salary sacrifice has been the dominant company-car trend since 2020.

How company car tax works in one formula

Annual BIK charge = (List price of car) × (BIK percentage) × (your marginal Income Tax rate)

All three inputs matter:

  1. List price — the manufacturer’s P11D value at new (not what was actually paid, and not after discounts). Optional extras count if they cost £100+ and are fitted before delivery.
  2. BIK percentage — set by HMRC based on CO2 emissions (for ICE/hybrid) or the car type (3%, 4%, etc. for pure electric). Rates rise year-by-year under published roadmaps.
  3. Marginal tax rate — 20% basic, 40% higher, 45% additional. BIK adds to your taxable income, so a BIK charge of £4,000 means you pay tax on £4,000 at your top marginal rate.

2026/27 BIK rates

Pure electric vehicles (zero emissions)

  • 2025/26: 3%
  • 2026/27: 4%
  • 2027/28: 5%
  • 2028/29: 7%
  • 2029/30: 9%

Plug-in hybrid electric vehicles (PHEV)

Rates depend on CO2 emissions AND electric-only range per manufacturer’s data. Post-April 2026 the system tightened — from April 2028 hybrids with CO2 between 1-50g/km have a single fixed BIK% (likely mid-teens) regardless of electric range, closing the pre-2028 advantage for long-range PHEVs.

For 2026/27, PHEV rates sit in the 5% – 19% band depending on electric range:

  • Range 130+ miles electric: 5%
  • Range 70-129 miles: 8%
  • Range 40-69 miles: 12%
  • Range 30-39 miles: 14%
  • Range under 30 miles: 17%

Petrol and diesel cars

Based on CO2 emissions (g/km):

CO2 (g/km)BIK % (petrol)BIK % (diesel, non-RDE2)
501519
751923
1002327
1252731
1503135
170+37 (cap)37 (cap)

Most diesel cars registered after September 2018 meet the “RDE2” clean emissions standard and pay the petrol rate (no +4% diesel surcharge).

Rates nominally rise 1% per year for 2027/28 and 2028/29 across all non-EV categories, cap at 37%.

Worked examples for 2026/27

Tesla Model 3 (pure electric)

  • List price: £45,000
  • CO2: 0 g/km
  • BIK%: 4%
  • Notional BIK income: £45,000 × 4% = £1,800

Tax cost:

  • Basic rate (20%): £1,800 × 20% = £360/year (£30/month)
  • Higher rate (40%): £1,800 × 40% = £720/year (£60/month)
  • Additional rate (45%): £1,800 × 45% = £810/year (£67.50/month)

BMW 330e (plug-in hybrid, 38-mile electric range)

  • List price: £52,000
  • Electric range: 38 miles (38 → 14% bracket)
  • BIK%: 14%
  • Notional BIK income: £52,000 × 14% = £7,280

Tax cost:

  • Higher rate (40%): £7,280 × 40% = £2,912/year (£243/month)
  • Compared to the EV: 4× the tax cost

VW Golf 2.0 TDI (diesel, RDE2)

  • List price: £30,000
  • CO2: 125 g/km
  • BIK% (RDE2 diesel = petrol rate): 27%
  • Notional BIK income: £30,000 × 27% = £8,100

Tax cost:

  • Higher rate (40%): £8,100 × 40% = £3,240/year (£270/month)

Ford Ranger pickup (commercial vehicle)

Pickups and commercial vehicles with a separate passenger compartment can qualify for the flat van BIK rather than car BIK. Flat van BIK for 2026/27: £3,960 + £757 for fuel if applicable. Significantly cheaper than car BIK for most lifestyles — but HMRC has been tightening the commercial-vehicle definition post-2023 court cases.

Why EV company cars exploded 2020-2025

Key drivers:

  1. Super-low BIK on pure EVs (2% from 2022 to 2024, 3% in 2025/26, 4% in 2026/27 — compared to 27%+ for equivalent ICE)
  2. Salary sacrifice schemes combining EV lease with gross-pay reduction → stacking income tax and NI savings (28-42%) ON TOP of the low BIK
  3. Employer NI saving on sacrificed salary (15% from April 2025) often passed back as a cheaper monthly price

Net result: a £600/month gross lease on a £45,000 EV costs a higher-rate employee roughly £350-£400/month effective after tax savings and BIK cost.

Fuel benefit — separate charge

If your employer pays for personal petrol / diesel fuel (not just business travel), a separate fuel benefit charge applies:

Annual fuel benefit = (Fuel benefit multiplier) × (BIK%)

2026/27 multiplier: check current gov.uk rate — typically £27,800 (2025/26 was £27,800; uprates modestly for 2026/27).

Same BIK% as the car applies. For most drivers it’s cheaper to pay for your own private fuel than accept the fuel benefit — running the numbers usually shows the break-even at around 8,000+ private miles/year.

No fuel benefit exists for pure electric — electricity provided by employer is exempt from separate BIK.

Common pitfalls

Treating the P11D list price as “what the car cost”

HMRC uses the official list price INCLUDING VAT and any optional extras worth £100+. Dealer discounts don’t reduce it. A £50,000 car “on the road price” with a £3,000 discount still has the £50,000 P11D value.

Ignoring the diesel surcharge pre-RDE2

Diesel cars registered before September 2018 that don’t meet RDE2 pay the BIK% + 4%. A 2017 diesel at 150 g/km isn’t at 35% — it’s at 35% + 4% = 39% (capped at 37%).

Thinking BIK reduces pro-rata if you only drive it evenings

The BIK charge is for the availability of the car for private use, not actual usage. Having the keys on a Monday-Friday basis with weekend use = full BIK. Only if the employer records that the car was made unavailable for a period (keys handed back, 30+ days) can the charge be reduced proportionally.

Expecting company cars to “save money” for the employee

Unless your employer is paying for the entire vehicle as a perk with no salary adjustment, a company car usually costs you MORE in tax than taking the cash equivalent and running your own car — except for EVs.

Tax code impact

BIK charges are usually collected through PAYE by adjusting your tax code. A £1,800 BIK means HMRC reduces your PA by £1,800 — new code 1077L instead of 1257L — and tax comes out of your payslip at normal rates. Alternatively, some employers opt for “payrolling” BIK (showing it as extra taxable pay on each payslip), which is simpler but slightly changes the cash flow.