Zero-Emission Company Cars: Tax Savings Explained 2026/27

Company car tax has long been a deterrent for employees considering a vehicle through their employer. But for zero-emission vehicles, the benefit-in-kind (BIK) rates remain remarkably low. In 2026/27, an electric company car triggers only 4% BIK, compared to 25% to 37% for the average petrol or diesel equivalent. For many employees and their employers, the maths is compelling. This guide explains how the system works and what is coming down the road.

How Company Car Tax Works

When your employer provides a company car, HMRC treats it as a taxable benefit. The annual taxable value is calculated as:

List price x BIK percentage = taxable benefit

You pay income tax on that benefit at your marginal rate. Your employer pays Class 1A National Insurance (15% in 2026/27, charged on the employer above the secondary threshold of GBP 5,000) on the same figure.

For example, a petrol car with a list price of GBP 40,000 and a BIK rate of 28% creates a taxable benefit of GBP 11,200. A higher-rate taxpayer pays 40% of that -- GBP 4,480 per year, or around GBP 373 per month. The employer pays 15% x GBP 11,200 = GBP 1,680 in employer NI.

The EV Advantage in 2026/27

Zero-emission cars (purely electric, no combustion engine) attract a BIK rate of just 4% in 2026/27. Using the same GBP 40,000 list price:

• Taxable benefit: GBP 40,000 x 4% = GBP 1,600
• Higher-rate taxpayer's annual tax: 40% x GBP 1,600 = GBP 640 (GBP 53/month)
• Employer NI: 15% x GBP 1,600 = GBP 240

Compare that GBP 53 per month employee cost to GBP 373 for the petrol equivalent -- a saving of GBP 320 per month for the employee alone. The employer saves GBP 1,440 in NI per year.

Even accounting for the higher list price of many EVs, the tax advantage is substantial. And home charging costs can be covered through approved mileage allowance payments or employer-installed home chargers (which attract no benefit-in-kind where certain conditions are met).

The BIK Roadmap: 2026/27 to 2029/30

The government has published BIK rates for zero-emission vehicles through to 2029/30, giving certainty for anyone signing a three or four-year contract:

• 2026/27: 4%
• 2027/28: 5%
• 2028/29: 7%
• 2029/30: 9%

Rates will rise, but remain well below petrol and diesel equivalents for the foreseeable future. Even at 9% in 2029/30, the calculation heavily favours EVs against conventional vehicles at 28%+.

For plug-in hybrids, the rates depend on the vehicle's CO2 emissions and electric range. Cars with zero-emission ranges below 70 miles typically fall into the 5% to 14% range, depending on emissions. Pure EVs remain the most tax-efficient category.

Salary Sacrifice for EVs

Salary sacrifice schemes let employees give up gross salary in exchange for a company car. Because the car is provided by the employer, it is charged at BIK rates rather than income tax on the full salary given up. For EVs -- with a 4% BIK rate -- salary sacrifice is particularly effective.

Under an optional remuneration arrangement (OpRA), salary sacrifice for most benefits is taxed at the higher of the BIK value or the amount of salary foregone. However, ultra-low-emission vehicles (ULEVs), defined as those with CO2 emissions of 75g/km or less, are exempt from the OpRA rules. That means purely electric vehicles can be taken via salary sacrifice at just the BIK rate, regardless of the salary foregone.

This creates a double saving: the employee reduces their taxable income (saving income tax and employee NI) and pays tax only on the low BIK value.

Employer Benefits

For employers, providing EVs through salary sacrifice schemes reduces the payroll on which employer NI is charged. At 15% employer NI, reducing the payroll by GBP 500 per month per employee saves GBP 900 per year. Across a fleet of 50 employees, the NI saving alone can be substantial.

Employers who install EV charge points at the workplace can also reclaim 100% first-year capital allowances on the cost, making the upfront capital investment more attractive.

Charging: BIK on Electricity Costs

Employer-funded charging at the workplace is free of BIK. There is also no BIK on employer-installed home charge points provided the employer owns the equipment. Reimbursement for home charging costs through a cash payment does create a BIK, however, so structure any home-charging support carefully.

The approved mileage allowance payment (AMAP) rate for business miles in a private car is not the same as the advisory electricity rate. HMRC publishes an advisory electricity rate (currently 7p per mile for fully electric cars) for reimbursing employees who use their own EVs for business journeys.

Choosing the Right Vehicle

When selecting an EV on a company car scheme, look at:

• P11D list price (the published manufacturer price, including VAT, factory options and delivery)
• Guaranteed future BIK rates
• Contract length relative to the roadmap of rising rates
• Charging infrastructure at your home and typical work locations

With BIK at 4%, a GBP 50,000 EV creates a taxable benefit of just GBP 2,000. A basic-rate taxpayer pays GBP 400 per year in income tax on that benefit. That is exceptional value for a vehicle of that price point.

Use the CalcHub company car tax calculator to compare the true cost of EV and petrol company cars side by side: https://calchub.uk/calculators/company-car-tax