Company Car BIK Tax 2026/27: PHEV, EV and Diesel Rates Explained

Company car benefit-in-kind (BIK) tax has never mattered more than it does right now, because the gap between electric, hybrid and diesel rates is at a historic extreme. Understanding where your vehicle sits on the BIK table can mean the difference between hundreds and thousands of pounds in annual tax -- for both you and your employer.

How Benefit-in-Kind Tax Works on Company Cars

A company car benefit-in-kind is the taxable value of having a vehicle provided by your employer for private use. HMRC calculates this by multiplying the car's P11D value -- its list price including options, VAT and delivery but excluding registration and road tax -- by an appropriate percentage determined by CO2 emissions and fuel type.

The resulting BIK value is added to your taxable income for the year. If you are a basic rate taxpayer, you pay 20% of that BIK figure. Higher rate taxpayers pay 40%, and additional rate taxpayers pay 45%. Your employer also pays Class 1A National Insurance at 15% on the same BIK value, so there is a direct cost to the business too.

For example, a petrol car with a P11D value of £30,000 and a CO2 figure of 120g/km sits in the 28% BIK band in 2026/27. A higher rate taxpayer would pay 40% x 28% x £30,000 = £3,360 per year in BIK tax. That same employee in an electric car at the same P11D value would pay 40% x 3% x £30,000 = £360 per year -- a saving of £3,000 annually.

Electric Car BIK Rates 2026/27 and Beyond

The government has published BIK rates for electric vehicles through to 2028/29 to give employers and employees certainty when signing three to four year car finance agreements. The roadmap is:

• 2026/27: 3%
• 2027/28: 4%
• 2028/29: 5%

These rates are deliberately low to accelerate fleet electrification. Even by 2028/29, a 5% BIK rate on a £40,000 EV produces a taxable benefit of just £2,000, versus more than £14,000 on a comparable diesel model. For high earners in company cars, switching to electric is one of the few remaining tax planning moves available without complex structures.

Zero-emission vans also benefit from a reduced BIK charge. The van benefit charge for a zero-emission van is currently set at 0% of the standard van benefit figure, making electric vans exceptionally attractive from a tax perspective.

PHEV Rates: 5-12% in 2026/27

Plug-in hybrid electric vehicles occupy a wide BIK band in 2026/27, from 5% for vehicles with the longest zero-emission ranges down to 12% for shorter-range PHEVs with moderate CO2 output. The key determining factors are:

1. CO2 emissions in g/km
2. Electric-only range in miles (WLTP figures)

PHEVs with 130 miles or more of electric range attract the lowest rates within their category. Vehicles with less than 30 miles of electric range are taxed more similarly to conventional hybrids. The government has signalled that PHEV rates will continue to fall for longer-range vehicles as battery technology improves, with some bands projected to reach 3% by 2028.

It is worth noting that real-world electric range often differs significantly from WLTP figures, particularly in colder weather. A driver who regularly depletes their battery will find the running cost advantage over a conventional car less pronounced than the BIK saving suggests.

Diesel Surcharge and the RDE2 Rule

Conventional diesel cars face the toughest BIK treatment in 2026/27. All diesel vehicles that do not meet the Real Driving Emissions 2 (RDE2) standard attract a 4% diesel supplement on top of their CO2-based percentage. Since most diesel cars sold before 2021 do not meet RDE2, this catches a large proportion of fleet vehicles.

A diesel SUV emitting 170g/km CO2 sits in the 33% BIK band under the CO2 table, with the 4% diesel surcharge taking the effective rate to 37%. On a P11D value of £40,000, that produces a taxable benefit of £14,800. A higher rate taxpayer pays £5,920 per year -- plus the employer pays a further £2,220 in Class 1A NI. The total cost to employer and employee combined can easily exceed £8,000 per year for a single mid-range diesel company car.

Only diesel cars that achieve RDE2 certification -- generally those sold from 2021 onwards with improved exhaust after-treatment -- are exempt from the surcharge.

Salary Sacrifice and the EV Exception

Salary sacrifice company car schemes allow employees to give up a portion of gross salary in exchange for a company car. The reduction in gross salary saves both income tax and National Insurance -- for the employee -- and employer NI for the company.

Under normal circumstances, salary sacrifice arrangements are subject to Optional Remuneration Arrangement rules. This means HMRC taxes the employee on the higher of the BIK value or the amount of salary sacrificed, removing much of the tax advantage. However, ultra-low emission vehicles with CO2 emissions of 75g/km or less -- including all fully electric vehicles -- are exempt from OpRA rules entirely.

This exemption makes EV salary sacrifice schemes a genuine tax planning tool. An employee sacrificing £600 per month (£7,200 per year) for an EV worth £40,000 would pay BIK tax on just 3% x £40,000 = £1,200, rather than the £7,200 of salary sacrificed. Combined with NI savings, the net cost to the employee can be 30-40% below what they would pay to run the same car personally.

Employer Considerations: Class 1A NI and Reporting

Employers need to report company car benefits on form P11D by 6 July following the end of the tax year. Class 1A NI at 15% is due on the total BIK value by 19 July (or 22 July if paying electronically).

With employer NI having risen to 15% from April 2025, the cost of providing high-BIK vehicles has increased. A fleet manager overseeing 50 diesel cars, each with a £14,000 BIK value, faces a Class 1A NI bill of 15% x £14,000 x 50 = £105,000. Transitioning that same fleet to electric cars would cut the NI bill to 15% x £1,200 x 50 = £9,000 -- a saving of £96,000 per year to the business.

The most tax-efficient company car choice in 2026/27 is unambiguous: a fully electric vehicle, ideally accessed through an EV salary sacrifice scheme. PHEV rates are competitive for longer-range models but involve more complexity. Diesel company cars are increasingly hard to justify on a total cost basis when BIK, fuel and employer NI costs are all factored in.