Company car tax -- officially called the Benefit in Kind (BIK) charge -- is one of the most significant employee tax considerations in 2026/27. With electric vehicles taxed at just 3% BIK versus 20-37% for petrol and diesel cars, the company car tax system has become a powerful incentive to go electric. This guide explains how BIK rates work, how to calculate your personal tax charge, the employer's Class 1A NI obligation, salary sacrifice for EVs, the fuel benefit charge, and the key differences between cars and vans for BIK purposes.
The BIK tax on a company car is calculated in two steps:
Example for a GBP 50,000 electric car at 3% BIK:
For comparison, the same GBP 50,000 car with CO2 emissions of 120g/km (a mid-range petrol) would attract a BIK rate of 27%, giving a BIK value of GBP 13,500 and a tax bill of GBP 5,400 per year for a 40% taxpayer -- nine times higher than the EV equivalent.
The government published BIK rates through to 2027/28 to give businesses certainty. Key rates for 2026/27:
A 4% diesel supplement applies to diesel cars that do not meet the RDE2 real-world emissions standard, capped at the maximum 37% rate. Most diesels registered from January 2021 meet RDE2 and avoid the surcharge.
Employers pay Class 1A NI at 13.8% on the full BIK value of company cars provided to employees. The Class 1A NI is calculated on the same BIK value used for income tax purposes. For the GBP 50,000 EV example above, the employer pays 13.8% x GBP 1,500 = GBP 207 per year in Class 1A NI. For a petrol car with a GBP 13,500 BIK value, the employer pays 13.8% x GBP 13,500 = GBP 1,863 per year. Employers must report company car benefits on Form P11D by 6 July following the tax year end and pay the Class 1A NI by 22 July.
Electric vehicles are among the few benefits that genuinely benefit from salary sacrifice under the Optional Remuneration Arrangement (OpRA) rules. For most benefits, OpRA removes the NI and income tax advantage of sacrifice -- the employee is taxed on whichever is greater: the BIK value or the salary sacrificed. However, ultra-low emission vehicles (ULEVs, defined as cars with CO2 emissions below 75g/km) are explicitly excluded from the OpRA anti-avoidance rules. This means:
This makes EV salary sacrifice schemes one of the most cost-effective ways for employers to provide benefits to employees in 2026/27. Many employers offer fleet-managed EV schemes that pool the purchasing power of the organisation to achieve lower lease rates.
If an employer installs a charge point at an employee's home and pays the electricity cost, this is a taxable benefit unless it meets specific conditions. HMRC currently allows employers to provide workplace EV charging points as a non-taxable benefit -- employees can charge their company car at work for free without a BIK charge. Home charger hardware installation costs can also be provided tax-free under HMRC's current guidance. Advisory Electric Rates (AERs) are published quarterly for employees who use their own electricity to charge and then claim reimbursement from their employer.
