Electric vs Petrol Company Car 2026/27: BIK Tax Compared

Quick answer

If your employer offers you a company car, the type of car you choose has an outsized effect on your tax bill. In 2026/27 a fully electric car is taxed as a benefit-in-kind on just 4% of its list price, while a typical petrol or diesel sits at 25% to 37%. Because you then pay income tax on that benefit at your marginal rate, the petrol driver can pay seven or eight times more tax for an equivalent car. This guide walks through exactly how the numbers stack up for 2026/27, with worked comparisons you can adapt to your own situation.

How company car tax works

A company car you can use privately is a benefit-in-kind (BIK) — a perk that HMRC taxes as if it were extra salary. The taxable value is built from two numbers:

1. The P11D value — broadly the car's list price including VAT, delivery and most options, but excluding the first registration fee and road tax.
2. The BIK percentage (the "appropriate percentage") — set by the car's CO2 emissions and fuel type.

The calculation is:

P11D value × BIK% = taxable benefit

Taxable benefit × your income tax rate = annual tax you pay

So both the percentage and your tax band drive the cost. Work yours out with the

.

The 2026/27 BIK rates: electric vs combustion

The gap between electric and combustion cars is the entire story.

• Fully electric (zero-emission): 4%. This is the headline advantage. A £40,000 EV is taxed on just £1,600 of benefit.
• Plug-in hybrids: depend on electric-only range and CO2, ranging from single digits up to the high teens — better than petrol, worse than pure electric.
• Petrol and diesel: typically 25% to 37%, with the highest-emitting cars pinned at the 37% cap. A £40,000 petrol car commonly sits around 28–32%, taxed on £11,200–£12,800 of benefit.

Diesel cars that do not meet the RDE2 standard add a 4% surcharge (still capped at 37%), making them the most heavily taxed of all.

Worked comparison: a £40,000 car, higher-rate taxpayer

Take two similar cars with a £40,000 P11D value, driven by a 40% taxpayer.

Electric car at 4%:

• Taxable benefit: £40,000 × 4% = £1,600.
• Tax at 40%: £1,600 × 40% = £640 a year (about £53 a month).

Petrol car at 30%:

• Taxable benefit: £40,000 × 30% = £12,000.
• Tax at 40%: £12,000 × 40% = £4,800 a year (£400 a month).

The petrol driver pays £4,160 more tax every year for an equivalent car — and that is before fuel. Over a typical three-year company-car term, the EV saves over £12,000 in BIK tax alone. The

lets you slot in your own list price and rate.

Worked comparison: basic-rate taxpayer

The same cars for a 20% taxpayer:

• Electric (4%): £1,600 benefit × 20% = £320 a year.
• Petrol (30%): £12,000 benefit × 20% = £2,400 a year.

A £2,080 annual difference. The percentages are identical; only your tax band changes the cash. Either way, the EV is overwhelmingly the cheaper choice.

Fuel and electricity: the second saving

BIK is only part of the picture. There is also the cost of powering the car:

• Petrol/diesel: if your employer pays for private fuel, you face a separate and often punishing car fuel benefit charge — frequently so high that taking employer-paid private fuel is poor value. If you pay your own fuel, you are exposed to pump prices.
• Electric: there is no fuel benefit charge for electricity, and home charging is far cheaper per mile than petrol. Workplace charging provided by the employer is generally tax-free.

Estimate the running-cost gap with the

, which compares pence-per-mile for EV charging against petrol.

Salary sacrifice: where the EV advantage compounds

Many employers now offer electric cars through salary sacrifice, and this is where the maths becomes compelling. You give up gross salary in exchange for the car, so you save income tax and National Insurance on the sacrificed amount, and only pay the tiny 4% BIK in return.

For a higher-rate taxpayer, sacrificing salary to fund an EV means the car is effectively bought out of pre-tax, pre-NI income, while the benefit charged back is minimal. The net cost of a quality EV through salary sacrifice can undercut leasing the same car privately by a wide margin. Combustion cars do not work this way under most sacrifice schemes because their high BIK rate cancels out the salary saving. Model it with the

; our EV salary sacrifice case study runs the full numbers.

How the rates change after 2026/27

The electric advantage is being slowly trimmed, but it remains decisive:

• 2026/27: 4%
• 2027/28: 5%
• and rising by roughly a point a year thereafter.

Even at 5% or 6%, an EV is taxed on a fraction of a petrol car's 25–37%. The government has signalled the differential will narrow only gradually, giving company-car drivers years of warning. If you take a three- or four-year EV through salary sacrifice now, you broadly lock in today's low rates for the life of that arrangement (subject to scheme terms), which is part of the appeal.

When might petrol still make sense?

The EV is not automatically right for everyone:

• Very high mileage with poor charging access. If you cannot charge at home or work and do constant long motorway runs, the practical cost and time of public charging can erode the tax saving.
• You would rather take cash. For a petrol car with a high BIK, a cash allowance plus a privately bought or financed car is often cheaper than the company car. For an EV, the company car (especially via sacrifice) usually wins.
• Short ownership or low list price. On a cheap petrol runaround the absolute BIK figures are smaller, narrowing the gap.

The honest rule of thumb: for electric, take the company car; for petrol, seriously consider taking the cash instead. Compare both routes against your

.

Worked example: company car vs cash allowance

Mark is offered either a £40,000 petrol company car or a £6,000 cash allowance. He is a 40% taxpayer.

• Company car route: £4,800 a year in BIK tax, and the car is the employer's choice.
• Cash route: £6,000 allowance, taxed at 40% + 2% NI, leaving roughly £3,480 net to spend on a car of his choice — and no BIK liability.

For the petrol option, taking the cash and financing or leasing privately gives Mark more flexibility and avoids the £4,800 charge. Now swap to a £40,000 EV: the BIK is only £640, so the company car is far better value than the cash, especially via salary sacrifice. Same employer, opposite answer — driven entirely by the fuel type.

Understanding the P11D value

Because the P11D value sits at the heart of every calculation, it pays to understand exactly what goes into it. The P11D figure is broadly the car's list price when new, including:

• The manufacturer's list price including VAT.
• Delivery charges and number-plate fees.
• The price of most optional extras fitted before delivery.

It excludes the first registration fee and the first year's vehicle tax. Crucially, the P11D value is based on the list price, not what your employer actually paid — so a discount negotiated by the company does not reduce your BIK. For an EV, the list price is often higher than an equivalent petrol model, but the 4% rate is so low that the EV still wins comfortably. If you contribute a capital sum towards the car (up to £5,000) or make regular payments for private use, those can reduce the taxable benefit. Plug your figures into the

to see the effect.

Vans and other vehicles

The rules above apply to cars. Company vans are taxed differently — on a flat benefit charge rather than a percentage of list price — and a zero-emission van currently has a nil van benefit charge, making electric vans extraordinarily tax-efficient for those who qualify. If your work vehicle is genuinely a van rather than a car, the maths is even more favourable for going electric, and there is no escalating percentage to track. Be aware that HMRC has specific definitions of what counts as a van versus a car (notably around double-cab pickups, where the treatment has tightened), so check the classification before assuming van rules apply.

What about charging and the practicalities?

Tax aside, the EV case rests on being able to charge conveniently:

• Home charging is by far the cheapest, especially on an off-peak EV electricity tariff — often a few pence per mile against 15–20p for petrol.
• Workplace charging provided by your employer is generally a tax-free benefit, with no BIK on the electricity.
• Public rapid charging is more expensive and can erode the running-cost advantage, so the EV case is strongest for drivers who can charge at home or work.

Weigh your typical mileage and charging access honestly. For the large majority of company-car drivers with home or workplace charging, the combination of a 4% BIK rate, no fuel benefit charge and cheap home electricity makes the electric car the obvious financial choice. The

turns your mileage and tariff into a pence-per-mile comparison.

A three-year cost-of-ownership comparison

To see the full picture, look beyond a single year's BIK to the total cost over a typical company-car term. Take our two £40,000 cars and a higher-rate (40%) driver covering 10,000 private-equivalent miles a year over three years.

Electric car:

• BIK tax: £640 a year × 3 = £1,920.
• Fuelling: home charging at, say, 5p per mile × 30,000 miles = £1,500.
• Total tax + energy over three years: roughly £3,420.

Petrol car (30% BIK):

• BIK tax: £4,800 a year × 3 = £14,400.
• Fuelling: petrol at, say, 18p per mile × 30,000 miles = £5,400.
• Total tax + fuel over three years: roughly £19,800.

The electric driver is better off by around £16,000 across the term on tax and energy alone — before considering lower servicing costs and, where salary sacrifice applies, the additional income-tax and NI savings on the sacrificed salary. The numbers will vary with your mileage, tariff and exact BIK rate, but the direction is emphatic. Build your own three-year view using the

alongside the .

A note on your tax code

One practical point that surprises new company-car drivers: the BIK is usually collected by adjusting your PAYE tax code, not as a separate bill. HMRC reduces your tax-free personal allowance by the value of the benefit, so you pay the tax gradually through your monthly salary. For a petrol car with a large benefit this can noticeably shrink your take-home pay each month; for an EV the adjustment is small. If you change cars mid-year, tell HMRC promptly so your code is corrected — otherwise you can build up an under- or over-payment to settle later. Check the impact on your monthly figure with the

.

The bottom line for 2026/27

Company car tax in 2026/27 rewards going electric in the clearest possible terms: a 4% BIK rate versus 25–37% for combustion turns a perk that used to be a tax headache into one of the best-value benefits available, particularly through salary sacrifice. Petrol and diesel drivers will usually be better off taking a cash allowance and arranging their own car. Run your exact figures through the

and the before you choose.

This article is general information, not financial advice. Figures use 2026/27 UK BIK rates and thresholds, which can change at future fiscal events. Confirm current rates and your scheme's terms before committing.