How Much You Save With an Electric Company Car in 2026/27

An electric company car is one of the most tax-efficient benefits available to UK employees in 2026/27. The reason is a single number: the benefit-in-kind rate on a fully electric car is just 4%, against much higher CO2-based rates for petrol and diesel cars. Layer salary sacrifice on top and the effective cost of driving a new EV can fall well below what you would pay leasing or buying one personally.

This guide explains how company car tax works, why the EV rate is so low, and how the saving stacks up.

How company car tax works

When your employer provides a car you can use privately, that is a taxable benefit. HMRC works out the value of that benefit using two figures:

1. The P11D value of the car, broadly its list price including most factory options.
2. The benefit-in-kind (BIK) percentage, which depends on the car's CO2 emissions.

Multiply the P11D value by the BIK percentage and you get the taxable benefit. You then pay income tax on that benefit at your marginal rate: 20% for basic-rate, 40% for higher-rate, or 45% for additional-rate taxpayers.

The BIK percentage is the lever. A low percentage means a small taxable benefit and a small tax bill. A high percentage means the opposite.

Why electric cars are taxed so lightly

For 2026/27 the BIK percentage on a fully electric car is 4%. That is the whole story behind the saving. Because only 4% of the car's value is treated as a taxable benefit, the tax you pay is small.

Petrol and diesel cars are taxed very differently. Their BIK percentage is set by CO2 emissions, and for anything other than the very lowest-emission models it is far higher than 4%, commonly in the region of 25% to 37% for higher-emission cars. The exact band depends on the car's CO2 figure, but the gap to the 4% EV rate is large.

A worked comparison

Consider two company cars, each with a P11D value of £40,000, provided to a higher-rate (40%) taxpayer.

The petrol figure here is illustrative because the exact band depends on the car's CO2 emissions, but the pattern is clear. On the same list price, the electric car generates a far smaller taxable benefit, and the higher-rate taxpayer pays roughly £640 a year in company car tax against several thousand for the petrol car. That difference, year after year, is the core of the saving.

Adding salary sacrifice

Many EV company cars are offered through a salary sacrifice scheme, and this is where the saving becomes really attractive. With salary sacrifice, you give up an agreed amount of your gross salary in exchange for the car. Crucially, that sacrifice comes out of your pay before income tax and National Insurance are applied.

So you save:

• Income tax on the salary you sacrifice, at your marginal rate.
• National Insurance on the salary you sacrifice.

In return you pay only the low 4% benefit-in-kind charge on the car. For a higher-rate taxpayer, the combined effect of sacrificing pre-tax salary and paying just 4% BIK can make a brand-new electric car significantly cheaper than leasing one with after-tax money.

Who saves the most

The saving scales with your tax band:

• Higher and additional-rate taxpayers save the most, because they avoid tax and National Insurance at 40% or 45% on the sacrificed salary, while still paying only the 4% BIK.
• Basic-rate taxpayers still benefit, from both the low 4% BIK and the pre-tax sacrifice, but the absolute saving is smaller because they are saving tax at 20%.

There is also a National Insurance dimension for the employer, which is partly why many employers are keen to offer these schemes.

Things to check before committing

Salary sacrifice is powerful but it has trade-offs worth understanding:

• Reduced gross salary can affect other things linked to your pay, such as mortgage affordability assessments, pension contributions calculated on salary, and some statutory payments. Check the knock-on effects.
• The arrangement is a commitment, usually for the lease term of the car. Leaving the job or the scheme early can have consequences, so understand the early-exit terms.
• The 4% BIK rate applies to 2026/27. Government policy on EV BIK rates is set to rise gradually in later years, so the rate will not stay at 4% indefinitely. Factor in how the rate is scheduled to change over your lease.
• Charging matters. The tax saving is largest when you can also charge cheaply at home, compounding the running-cost advantage of an EV.

Why the petrol comparison is so stark

The reason the gap is so wide is that company car tax is designed to push drivers toward low-emission vehicles. A petrol car's CO2-based BIK percentage rises with emissions, so a thirsty car can be taxed on a large slice of its value every year. The electric car, at 4%, sidesteps almost all of that. For a company car driver, fuel type is the single biggest factor in the tax bill.

The bottom line

An electric company car in 2026/27 is taxed on just 4% of its value, against much higher CO2-based rates for petrol and diesel cars. Through salary sacrifice, you also avoid income tax and National Insurance on the salary you give up, while paying only that small 4% benefit-in-kind charge. The result is one of the most tax-efficient perks available, especially for higher-rate taxpayers. Check the effect on your wider finances and how the BIK rate is scheduled to rise, but for many employees the saving is substantial.

To estimate the savings on a specific electric car, use the electric car savings calculator.