How much less tax do I pay for an electric company car versus petrol?

Full answer

Company car tax (Benefit-in-Kind, or BIK) is calculated as a percentage of the car's list price (P11D value), with the percentage set according to the car's CO2 emissions -- and the gap between electric and petrol/diesel percentages remains large, making electric company cars significantly cheaper from a tax perspective. **How BIK percentage bands work** Zero-emission electric vehicles sit in the lowest BIK percentage band, while petrol and diesel cars are taxed on a sliding scale based on CO2 emissions per km, generally landing between roughly 25% and the maximum 37% for higher-emission models -- diesel cars without RDE2 certification also carry a further supplement on top of the standard percentage. **How the taxable benefit is calculated** The taxable benefit is the car's P11D value (list price including VAT and options, before any discount) multiplied by the relevant BIK percentage, and this taxable benefit amount is then taxed at your marginal Income Tax rate (20%, 40%, or 45%), exactly like additional salary. **Worked example** A petrol car with a £35,000 P11D value and a 30% BIK percentage produces a taxable benefit of £10,500. A higher-rate (40%) taxpayer pays 40% of £10,500 = £4,200 a year in company car tax. An electric car with the same £35,000 P11D value, taxed at a low single-digit BIK percentage, produces a much smaller taxable benefit, resulting in a company car tax bill that can be many hundreds of pounds lower per year for the same driver. **Employer National Insurance too** Employers also pay Class 1A National Insurance on the same taxable benefit figure, so a lower BIK percentage for electric cars reduces the employer's NI cost as well as the employee's Income Tax, which is part of why many employers now favour electric vehicles in company car schemes and salary sacrifice car schemes. **BIK percentages are scheduled to rise gradually** Electric vehicle BIK percentages, while still far below petrol/diesel rates, are set to increase gradually in stages over successive tax years as government transitions incentives -- check the current year's specific percentage rather than assuming it stays fixed indefinitely. **Practical tip** Before choosing a company car, check the exact BIK percentage for the specific model and tax year on gov.uk, and multiply by the P11D value and your marginal tax rate to compare the real annual cost between electric and petrol/diesel options side by side.

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