Pillar Guide · Updated May 2026
UK Company Car Benefit in Kind (BiK) Tax 2026/27: Electric Car 3%, Petrol Up to 37%, P11D Reporting, Class 1A NI and Salary Sacrifice EVs
A company car is a taxable benefit in kind (BiK). HMRC calculates the taxable value as the car's P11D list price × CO2-based appropriate percentage. For 2025/26, a zero-emission electric car attracts just 3% BiK — meaning a £40,000 EV creates only £1,200 of taxable benefit (£240/yr tax for a basic-rate employee, £480/yr for a higher-rate employee). A petrol car with 120g CO2 uses a 30% rate — the same £40,000 car creates £12,000 of taxable benefit (£4,800/yr tax for a higher-rate employee). Employers also pay Class 1A NI at 13.8% on the benefit value. Electric vehicles via salary sacrifice are uniquely exempt from Optional Remuneration Arrangement (OpRA) rules — making EV salary sacrifice one of the most tax-efficient employee benefits available in 2026/27. This guide covers BiK calculation, CO2 rate tables, electric car advantages, fuel benefit, P11D reporting, and the EV salary sacrifice mechanics.
The BiK Formula — P11D Value × Appropriate Percentage
Company car tax (technically: the income tax charge on the employment benefit of a car made available for private use) works as follows:
- P11D value = manufacturer's list price including standard accessories + VAT, minus any capital contribution you pay (up to £5,000 maximum reduction)
- Appropriate percentage = CO2-based rate set by HMRC each tax year
- Taxable benefit = P11D value × appropriate percentage
- Income tax = taxable benefit × your marginal rate (20%, 40% or 45%)
Appropriate Percentages for 2025/26
HMRC publishes a full table of appropriate percentages by CO2 band. Key reference points for 2025/26:
Company car BiK rates 2025/26 (England, Wales, NI)
| CO2 (g/km) | Petrol/Hybrid % | Diesel surcharge* |
|---|---|---|
| 0 (electric) | 3% | N/A |
| 1–50 (EV range >130mi) | 5% | N/A |
| 1–50 (EV range 70-129mi) | 8% | N/A |
| 1–50 (EV range 40-69mi) | 12% | N/A |
| 1–50 (EV range <40mi) | 14% | N/A |
| 51–75 | 17% | +4% |
| 76–94 | 18% | +4% |
| 95–99 | 19% | +4% |
| 100–104 | 20% | +4% |
| 110–114 | 22% | +4% |
| 120–124 | 24% | +4% |
| 130–134 | 26% | +4% |
| 140–144 | 28% | +4% |
| 155–159 | 31% | +4% |
| 175–179 | 35% | +4% |
| 195+ | 37% | +4% |
*Diesel surcharge (4%) applies to non-RDE2 diesels. Max rate 37% (incl. diesel surcharge). Source: HMRC.
Worked Examples — EV vs Petrol Comparison
£40,000 car — annual cost to higher-rate employee (2025/26)
| Item | Electric (0g) | Petrol (120g) | Diesel (140g) |
|---|---|---|---|
| BiK rate | 3% | 24% | 32% |
| Taxable benefit | £1,200 | £9,600 | £12,800 |
| Employee IT (40%) | £480 | £3,840 | £5,120 |
| Employer Class 1A NI (13.8%) | £165.60 | £1,324.80 | £1,766.40 |
Electric Car Salary Sacrifice — How It Works
EV salary sacrifice is the single most tax-efficient employee benefit available in 2025/26. The mechanics:
- Employee formally reduces salary by the monthly EV lease cost
- Employer leases the EV and provides it as a benefit
- Employee pays Income Tax + employee NI on the BiK (3% × P11D value) — NOT on the sacrificed salary
- Employee saves IT (20-45%) + employee NI (8% or 2%) on the sacrificed salary
EV salary sacrifice — £500/month sacrifice, higher-rate employee (2025/26)
- Annual sacrifice: £6,000
- Income Tax saved (40%): £2,400
- Employee NI saved (2% above £50,270): £120
- BiK taxable benefit (EV £45,000 × 3% = £1,350): IT = £540
- Net employee cost (£6,000 − £2,400 − £120 + £540): £4,020/yr = £335/mo
- Equivalent cost from net pay if paying lease yourself: £6,000 gross → £3,600 net (60% take-home after 40% IT + 2% NI)
- EV salary sacrifice saving vs self-paying: ~£335 vs £500 effective = ~£2,000/yr saving
OpRA exemption — the key legal point
Under Optional Remuneration Arrangement (OpRA) rules, salary sacrifice is normally taxed on the HIGHER of the BiK value or the salary foregone. EVs are specifically EXEMPT from OpRA — the 3% BiK applies regardless of the salary sacrificed. This exemption makes EV salary sacrifice uniquely attractive. Petrol/diesel car salary sacrifice is NOT exempt from OpRA and provides little tax advantage as a result.
Fuel Benefit — Avoid the Trap
If your employer pays for personal mileage fuel (petrol or diesel), you face a very large additional taxable benefit:
Fuel benefit formula: £27,800 (2025/26 fuel multiplier) × appropriate percentage (same CO2 rate as the car).
Example: 120g petrol car (24% rate). Fuel benefit = £27,800 × 24% = £6,672. Higher-rate employee: £6,672 × 40% = £2,669/year additional tax. At typical fuel costs, this almost never represents value compared to just paying for your own personal fuel.
Electric cars: no fuel benefit charge. Employer-paid home charging or workplace charging for electric company cars does not trigger a fuel benefit. This is a further significant advantage of EVs.
P11D Reporting and Payrolling
Your employer must report company car benefits annually:
- P11D form: filed with HMRC by 6 July. Employees receive a copy. Triggers a tax code adjustment or Self Assessment entry.
- P11D(b): employer summary of total Class 1A NI payable. Class 1A NI due 22 July (electronic) or 19 July (cheque).
- Payrolling: if your employer has registered to payroll benefits, the BiK is included in your monthly PAYE — no year-end P11D adjustment. Class 1A NI is still reported on P11D(b).
If your car changes during the year, notify your employer immediately. The benefit is calculated pro-rata for the dates the car is available.
Common Mistakes
- 1. Accepting fuel for personal use. Unless you fully reimburse personal fuel at HMRC Advisory Fuel Rates, a fuel benefit charge applies — often costing more in tax than the fuel is worth.
- 2. Not declaring car changes to employer. P11D must reflect the exact dates cars are available. Undeclared periods result in under-reported benefits and HMRC penalties.
- 3. Assuming salary sacrifice for petrol cars works like EVs. Non-EV company car salary sacrifice is subject to OpRA and rarely tax-efficient. EVs have the specific exemption.
- 4. Ignoring capital contributions. If you can contribute up to £5,000 towards the car purchase, this reduces the P11D value and all future BiK tax.
- 5. Forgetting Class 1A NI when costing company cars for employers. The 13.8% employer NI on benefits makes company cars materially more expensive than a headline lease rate suggests.
Related Guides and Calculators
Use our Take-Home Pay Calculator to model the net effect of a company car benefit on your annual take-home, or read our P11D Benefits in Kind guide for full coverage of all taxable benefits including medical insurance, accommodation, and loans.
Key Sources
Frequently Asked Questions
How is company car Benefit in Kind (BiK) tax calculated?
Company car BiK is calculated as: P11D VALUE × APPROPRIATE PERCENTAGE = TAXABLE BENEFIT. (1) P11D VALUE — the list price of the car when new, including standard accessories and VAT, but excluding the first-year registration fee and Vehicle Excise Duty (road tax). If you pay a capital contribution towards the car (up to a maximum of £5,000), this is deducted from the P11D value. (2) APPROPRIATE PERCENTAGE — set by HMRC based on the car's CO2 emissions and fuel type. For 2025/26, rates range from 3% (zero-emission electric) up to 37% (high-emission diesel). (3) TAXABLE BENEFIT — the product of P11D value × appropriate percentage is added to your taxable income. Your income tax is calculated on this enlarged income at your marginal rate. EXAMPLE: Electric car, P11D value £40,000. Appropriate percentage 3%. Taxable benefit = £40,000 × 3% = £1,200. Tax at basic rate (20%): £240/year. Tax at higher rate (40%): £480/year. PETROL CAR comparison: same £40,000 car, 120g CO2, petrol = 30% appropriate percentage. Taxable benefit = £40,000 × 30% = £12,000. Tax at 40%: £4,800/year — 10× more expensive than the electric equivalent.
What are the company car BiK rates for 2025/26?
HMRC sets appropriate percentages (BiK rates) by CO2 band for 2025/26. Key rates: (1) ZERO-EMISSION (0g CO2, pure electric): 3%. (2) 1-50g CO2 (plug-in hybrid with electric range): 5-14% depending on zero-emission mile range. (3) 51-75g CO2: 17%. (4) 76-94g CO2: 18%. (5) 95-99g CO2: 19%. (6) 100-104g CO2: 20%. (7) 105-109g CO2: 21%. (8) 110-114g CO2: 22%. (9) 115-119g CO2: 23%. (10) 120-124g CO2: 24%. (11) 125-129g CO2: 25%. (12) 130-134g CO2: 26%. (13) 135-139g CO2: 27%. And so on, increasing by 1% per 5g band up to a maximum of 37%. DIESEL SURCHARGE: add 4% for diesel cars not meeting RDE2 standards (most pre-2021 diesels). Maximum cap remains at 37% including the diesel supplement. The electric car rate of 3% has been confirmed through to 2027/28, rising to 5% in 2027/28, 7% in 2028/29, 9% in 2029/30 — providing long-term certainty for EV fleets.
Does my employer also pay tax on providing a company car?
Yes — employers pay Class 1A National Insurance Contributions (NIC) on the value of company car benefits. For 2025/26: CLASS 1A NI RATE: 13.8% on the taxable benefit value. EXAMPLE: Employee has a car with taxable benefit £12,000/year. Employer Class 1A NI: £12,000 × 13.8% = £1,656/year. This is an additional cost to the employer on top of the car costs (lease, insurance, fuel, maintenance). For electric cars: £40,000 EV at 3% BiK = £1,200 benefit. Employer Class 1A NI = £1,200 × 13.8% = £165.60/year — a fraction of a petrol equivalent. REPORTING: employers report company car benefits on form P11D (or via payrolling) by 6 July after the tax year end. Class 1A NI is paid by 19 July (cheque) or 22 July (electronic). Failure to report and pay Class 1A NI on time results in HMRC interest and penalties.
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What is the benefit of choosing an electric company car?
Choosing a zero-emission (electric) company car has significant tax advantages in 2025/26 compared to a petrol or diesel equivalent: (1) EMPLOYEE TAX SAVING — BiK rate 3% vs 30-37% for equivalent petrol/diesel. On a £40,000 car, the employee saves £4,320-£5,680/year in income tax (higher-rate taxpayer). (2) EMPLOYER NI SAVING — employer Class 1A NI is 13.8% of the BiK value. EV BiK £1,200 vs petrol BiK £12,000 → employer saves £1,490.40/year in NI per car. (3) CAPITAL ALLOWANCES — company buying an EV gets 100% first-year allowance (FYA) immediately vs 6% WDA/year for a >50g CO2 car. (4) FUEL BENEFIT — if the employer pays for personal electricity (home charging), there is no fuel benefit charge for electric cars (unlike petrol/diesel where personal mileage fuel creates a large taxable benefit). (5) 5-YEAR FORWARD CERTAINTY — HMRC has published EV BiK rates through to 2029/30, enabling confident fleet planning. WORKED COMPARISON (higher-rate employee, 5 years): EV £40k → employee tax = £480/yr × 5 = £2,400. Petrol £40k, 120g → employee tax = £4,800/yr × 5 = £24,000. Saving by EV: £21,600 over 5 years.
How does salary sacrifice work for electric company cars?
Electric car salary sacrifice (also called EV salary sacrifice or ultra-low emission vehicle salary sacrifice) is one of the most tax-efficient employee benefits available in 2025/26. The structure: (1) EMPLOYEE sacrifices salary equal to the monthly lease cost of an EV. The employer leases the car and provides it as a benefit. (2) BECAUSE IT IS SALARY SACRIFICE — the employee saves Income Tax + employee NI on the sacrificed salary. A higher-rate employee sacrificing £500/month saves 40% IT + 2% NI = 42% tax on that salary. (3) BiK CHARGE — instead of salary saving, the employee is taxed on the BiK (3% of list price). The net effect: employee pays BiK tax of £480/year (40% on £1,200 BiK) but saves £2,520 in IT/NI on £500/month × 12 months. Net employee saving: approximately £2,040/year. (4) EMPLOYER — saves employer NI (13.8% on sacrificed salary). On £6,000 sacrificed salary: employer saves £828/year per car. (5) OPTIONAL REMUNERATION ARRANGEMENT (OpRA) RULES — for most benefits, salary sacrifice is taxed on the HIGHER of BiK value or the cash given up. EV salary sacrifice is EXEMPT from OpRA — the BiK rate of 3% applies regardless of the salary sacrificed. This is what makes EV salary sacrifice uniquely attractive. For petrol/diesel cars, OpRA rules neutralise most of the salary sacrifice advantage. (6) PRACTICAL: employee gets a new EV for approximately £250-350/month net cost (after all tax savings), vs paying the same from net salary which would cost £400-450/month.
What is the P11D form and how is company car tax reported?
P11D is the annual return form that employers must submit to HMRC for each employee who has received taxable benefits in kind (including company cars) during the tax year. KEY POINTS: (1) DEADLINE — P11D forms must be submitted to HMRC by 6 July following the tax year end (e.g., for 2025/26, by 6 July 2026). (2) P11D(b) — summary form for employer Class 1A NI. Submitted alongside individual P11Ds. (3) CLASS 1A NI PAYMENT — must be paid by 22 July (electronic) or 19 July (cheque). (4) EMPLOYEE NOTIFICATION — employees must also receive a copy of their P11D by 6 July. (5) PAYROLLING BENEFITS — as an alternative to P11D, employers can payroll benefits (including company cars) by registering with HMRC before the tax year starts. Payrolling collects Income Tax through PAYE in real-time instead of via P11D adjustment at year-end. Once payrolled, no P11D is required for that employee (though P11D(b) Class 1A summary is still needed). (6) EMPLOYEE ACTION — your employer's P11D triggers an adjustment to your tax code or a Self Assessment return entry. If payrolled, benefits are already included in your PAYE. (7) CHANGES DURING YEAR — if you change car, return a car, or start using a car mid-year, report to your employer immediately. P11D reports the car for the precise dates it was available.
What about fuel benefits and car allowances?
FUEL BENEFIT FOR PETROL/DIESEL: if your employer pays for private mileage fuel (i.e., you can use the company petrol card or company fuel for personal journeys), there is a significant FUEL BENEFIT CHARGE. The 2025/26 fuel multiplier is £27,800. Fuel benefit = £27,800 × appropriate percentage (same CO2-based rate as the car BiK). Example: 120g petrol car, 30% appropriate percentage. Fuel benefit = £27,800 × 30% = £8,340 — a very large taxable benefit. Higher-rate employee: £8,340 × 40% = £3,336/year additional tax. UNLESS you fully reimburse personal mileage fuel at HMRC advisory fuel rates (AFRs), you trigger the full fuel benefit charge. Most employees should not accept fuel for personal use — the tax cost almost always exceeds the benefit. ELECTRIC CARS: there is NO fuel benefit charge for electricity provided for personal charging in zero-emission company cars. Home charging paid by the employer (or workplace charging) does not create a fuel benefit. This is another major advantage of EVs. CAR ALLOWANCE: instead of a company car, some employers offer a cash car allowance (typically £4,000-£8,000/year). This is taxable income (PAYE). You then buy/lease your own car and can claim HMRC mileage allowance (45p/mile up to 10,000 miles, 25p thereafter) for business travel. For high-mileage drivers, a car allowance plus HMRC mileage rates can be more tax-efficient than a company car — especially if the car is efficient and business mileage is high.
What happens if I contribute to the cost of the company car?
You can reduce your company car BiK tax in two ways by making capital contributions: (1) CAPITAL CONTRIBUTION — you pay a lump sum towards the cost of the car (up to £5,000). This reduces the P11D value by the amount paid. Example: car P11D £35,000, you contribute £4,000. Effective P11D = £31,000. Taxable benefit at 30% = £9,300 instead of £10,500. Annual tax saving at 40%: £480. Note: the £5,000 cap applies per car; you cannot reduce P11D below the list price minus £5,000. (2) PRIVATE USE CONTRIBUTION — you pay your employer a fixed monthly or annual amount for the personal use of the car. These payments are deducted from the taxable benefit. Example: you pay £100/month (£1,200/year) for private use. BiK of £12,000 minus £1,200 = £10,800 taxable benefit. Tax saving at 40%: £480/year. However, the payment must be made to your employer (not reimbursed to you); you cannot claim it back. COMBINATION: you can make both a capital contribution (reducing P11D) and a private use contribution (reducing the annual taxable benefit). Capital contribution is a one-off lump sum at the start; private use contribution is ongoing monthly payments.
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