If your limited company provides you with a car you can use privately, you pay tax on it as a benefit in kind. From 6 April 2026 the rates have nudged up again, and electric company cars are no longer quite the bargain they were.
This guide explains how company car tax actually works, what's changing in the 2026/27 tax year, and what it means in pounds for a typical director. It's written for company directors, contractors and small business owners weighing up whether a company car still stacks up.
We'll keep it practical: how the charge is calculated, the new rates, a worked example you can copy, and the road tax costs that sit alongside it.
What is company car tax (benefit in kind)?
When your company gives you a car you can use for private journeys, including commuting, HMRC treats that as a perk with a cash value. That value is a benefit in kind (BiK), and you pay Income Tax on it just as you would on extra salary.
Your employer also pays Class 1A National Insurance on the same benefit value. So the cost lands on both sides of the payroll.
The car still belongs to the company and the company can claim the running costs, but the private-use perk is taxable on you personally. That trade-off is the whole reason company car tax exists.
How is company car tax calculated?
Three things drive the figure: the car's list price, its CO2 emissions, and your Income Tax rate.
HMRC sets an "appropriate percentage" for each car based on how much CO2 it emits. The lower the emissions, the lower the percentage. You multiply the car's list price (the P11D value) by that percentage to get the taxable benefit, then apply your Income Tax rate to that benefit.
In short:
List price x appropriate percentage = taxable benefit. Taxable benefit x your Income Tax rate = your annual tax.
So a cleaner car with a lower appropriate percentage produces a smaller taxable benefit, and a smaller tax bill. That's exactly why fully electric cars have been so popular as company vehicles.
If you'd rather not run the sums by hand, our income tax calculator helps you see how an added benefit sits on top of your salary.
What are the company car BiK rates for 2026/27?
The appropriate percentages rise by one percentage point for most cars in 2026/27. For a fully electric, zero-emission car the rate moves from 3% in 2025/26 to 4% in 2026/27.
At the other end, the most polluting cars sit at the top of the scale.
| Car type | 2025/26 appropriate percentage | 2026/27 appropriate percentage |
|---|---|---|
| Fully electric (0g CO2/km) | 3% | 4% |
| Highest-emitting cars (cap) | 37% | 37% |
Source: HMRC company car appropriate-percentage guidance (see Sources). Petrol, diesel and hybrid cars fall on a sliding scale between these points depending on their exact CO2 figure, so check your specific model.
The direction of travel is clear. Electric company car rates are scheduled to keep rising by a percentage point a year, reaching 5% in 2027/28. Even so, an electric car still attracts a far smaller benefit than a petrol or diesel equivalent.
How much will an electric company car cost in tax?
Here's the calculation in practice.
Illustrative example
Priya is a company director and a higher-rate taxpayer (40%). Her company provides her with a fully electric car with a list price of £40,000.
- 2025/26 at 3%: £40,000 x 3% = £1,200 taxable benefit. £1,200 x 40% = £480 in tax for the year.
- 2026/27 at 4%: £40,000 x 4% = £1,600 taxable benefit. £1,600 x 40% = £640 in tax for the year.
So the one-point rise costs Priya an extra £160 in Income Tax across the year. A basic-rate (20%) taxpayer with the same car would pay £240 in 2025/26 and £320 in 2026/27, an extra £80.
Remember the company also pays Class 1A National Insurance on the £1,600 benefit, so factor that in when you look at the total cost to the business.
Are electric company cars still worth it in 2026/27?
For most directors, yes. The rates are creeping up, but a 4% appropriate percentage is still a fraction of what a comparable petrol or diesel car would attract.
To see the gap, compare Priya's electric car with a £40,000 petrol car sitting near the top of the scale at 37%:
Illustrative example
- Electric at 4% (2026/27): £40,000 x 4% = £1,600 benefit. At 40% tax, that's £640 a year.
- Petrol at 37% (2026/27): £40,000 x 37% = £14,800 benefit. At 40% tax, that's £5,920 a year.
That's a difference of more than £5,000 a year in personal tax for the same list price. The electric car is still by far the more tax-efficient choice for the driver, and it carries a lower Class 1A bill for the company too.
The takeaway isn't that electric company cars have stopped making sense. It's that the near-zero rates are gone, so build the rising percentages into any multi-year decision rather than assuming today's figure holds.
If you run a limited company and want to model the real cost before you commit, our team at Zmartly's tax advisory service does this routinely for directors. We also work day to day with contractors and other limited companies on exactly these decisions.
What road tax does an electric company car pay?
Tax on the benefit isn't the only cost. Electric cars now pay Vehicle Excise Duty (road tax) too.
For a new electric car registered on or after 1 April 2025, you pay a first-year rate of £10, then the standard annual rate of £200 from the second year onwards.
There's also the Expensive Car Supplement. If the car's list price is more than £50,000, an additional supplement applies for five years, starting from the second year of tax. Electric cars priced at or below £50,000 escape it.
These are flat charges on the vehicle rather than a benefit in kind, so they don't change with your Income Tax rate. But they belong in your budgeting alongside the BiK figure.
Frequently asked questions
What is the company car tax rate for electric cars in 2026/27?
A fully electric, zero-emission company car has an appropriate percentage of 4% in 2026/27, up from 3% in 2025/26. You multiply the car's list price by 4% to get the taxable benefit, then apply your Income Tax rate.
How is company car benefit in kind calculated?
Multiply the car's list price by the appropriate percentage for its CO2 emissions to get the taxable benefit, then apply your Income Tax rate to that benefit. Your employer also pays Class 1A National Insurance on the benefit value.
How much tax will I pay on a £40,000 electric company car?
A higher-rate (40%) taxpayer pays £640 in 2026/27 (£40,000 x 4% = £1,600 benefit, taxed at 40%). A basic-rate (20%) taxpayer pays £320. In 2025/26, at 3%, the figures were £480 and £240.
Are electric company cars still tax-efficient?
Yes. At 4% in 2026/27 the appropriate percentage is still far below the 37% cap that applies to the highest-emitting cars, so an electric company car carries a much smaller benefit in kind and a lower Class 1A bill than a petrol or diesel equivalent.
What road tax does an electric company car pay in 2026/27?
A new electric car registered from 1 April 2025 pays £10 in the first year, then the £200 standard rate from year two. If the list price is over £50,000, the Expensive Car Supplement also applies for five years from the second year.
Does my company pay National Insurance on a company car?
Yes. The employer pays Class 1A National Insurance on the same taxable benefit value that you pay Income Tax on, so the cost falls on both the company and the director.
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Want help deciding if a company car still works for you?
Company car tax rules shift every year, and the right answer depends on your salary, the car, and how your company is set up. Book a free 20-minute call with a Zmartly accountant and we'll model the numbers for your situation: talk to a Zmartly accountant.
