How is the company car fuel benefit taxed in 2026/27?

Full answer

The car fuel benefit is a separate benefit-in-kind that applies only when your employer pays for fuel used on private journeys (including commuting) in a company car. It works in two steps. First, the car itself creates a benefit-in-kind: a percentage band set by the car's CO2 emissions and electric range (fully electric cars sit in a very low band, high-emission petrol/diesel cars in the highest). Second, the fuel benefit takes a fixed cash multiplier - a single figure HMRC publishes each tax year - and multiplies it by that same CO2-based percentage. The result is the taxable fuel benefit added to your income. You pay Income Tax on the fuel benefit at your marginal rate: 20% in the basic band (gross 12,571 to 50,270), 40% in the higher band (50,271 to 125,140), or 45% above 125,140. Your employer separately pays Class 1A National Insurance at 15% on the benefit value. Because the multiplier is fixed regardless of how much fuel you actually use, the charge is often poor value unless you do very high private mileage. Many drivers are better off reimbursing the employer for private fuel (using HMRC advisory fuel rates) so no fuel benefit arises at all. Electric company cars have no fuel benefit, since electricity provided for charging is not treated as fuel. The specific multiplier and the CO2 percentage bands change each year, so I have not quoted them here - check the current figures on gov.uk or your P11D. Worked example of the principle: if the band percentage is 30% and the fixed multiplier were 28,000, the fuel benefit would be 8,400; a higher-rate taxpayer would pay 40% of that (3,360) in tax. Use the take-home pay calculator to see how added benefits-in-kind affect your overall tax position.

Try the calculator