UK Company Car Tax Guide 2026/27: BiK Rates, EV 4%, P11D and Salary Sacrifice

How Company Car BiK Works

A company car is a Benefit in Kind (BiK) — a non-cash employment benefit with a taxable value. The calculation:

The BiK value is added to your taxable income for the year. HMRC adjusts your PAYE tax code to collect the tax monthly through payroll, so you do not usually need a separate payment — the tax is deducted from your salary each pay period. Your P60 and P11D will show the BiK value each year.

Key definitions:

• P11D value: the manufacturer's list price including standard accessories and delivery, minus capital contributions (up to £5,000) — not the price your employer negotiated or paid.
• CO2 appropriate percentage: a HMRC-set rate based on the car's official CO2 emission figure and fuel type, from Appendix 2 of the Employment Income Manual, updated each April.
• Private use: any use outside of genuine business journeys, including commuting from home to a permanent workplace.

2026/27 CO2 Appropriate Percentage Bands

The table below shows the key CO2 bands for 2026/27. Always verify the current full table on gov.uk as rates change each April:

Source: HMRC Appendix 2. Rates are illustrative for common CO2 bands; verify the full table at gov.uk for precise figures.

Class 1A NI — Employer Cost

Employers pay Class 1A National Insurance at 15% on the BiK value of all company cars (plus fuel benefits and other benefits in kind). This was increased from 13.8% to 15% with effect from 6 April 2025 under the National Insurance Contributions Act 2025, applying to all BiK charges from the 2025/26 tax year onward.

Class 1A NI is not an employee cost — it does not appear in your payslip. But it is a real cost to your employer, which is relevant when negotiating whether to take a company car or a car allowance. For a £40,000 petrol car at 32% CO2 rate:

• BiK value: £40,000 × 32% = £12,800
• Employer Class 1A NI: £12,800 × 15% = £1,920/year
• Employee income tax (higher rate): £12,800 × 40% = £5,120/year

The employer pays £1,920 per year purely in NI on the benefit. This cost is separate from the running costs (lease, insurance, servicing) of the car. Class 1A NI is reported on the P11D(b) return submitted by 19 July after the tax year and paid by the same date (22 July electronically).

Worked Example: £40,000 EV vs £40,000 Petrol (130g/km)

Comparing a £40,000 (P11D) pure electric car against a £40,000 petrol car emitting 130g/km CO2 for a higher-rate (40%) taxpayer in 2026/27:

The difference for a 40% taxpayer: £640/year (EV) versus £4,160/year (petrol) in income tax alone — a saving of £3,520/year in employee tax simply by choosing an EV. Over a 3-year company car cycle the saving is £10,560 in income tax. The employer also saves £1,320 in Class 1A NI over the cycle.

For a very high-emission petrol car at 170g/km+ (37% BiK), the comparison is even more dramatic: BiK value £40,000 × 37% = £14,800, employee 40% tax = £5,920/year, employer NI = £2,220/year. Versus £640/year for the EV. This is why the majority of new company car choices in the UK in 2026 are electric or plug-in hybrid.

Company Car Fuel Benefit

If your employer provides free fuel for private journeys (not just business), a separate fuel benefit charge applies. For 2026/27, the fuel benefit charge multiplier is £27,800. The taxable value is:

For the 130g/km petrol example (26% rate): £27,800 × 26% = £7,228 additional BiK value. A 40% taxpayer pays £2,891/year extra in income tax for free fuel. Unless you drive very high private mileage (typically over 15,000 private miles per year), the tax cost almost certainly exceeds the value of the free fuel.

To avoid the fuel benefit, the employee must reimburse the employer for all private fuel at a cost per mile equal to or exceeding the advisory fuel rate (AFR) published quarterly by HMRC. Electric vehicles have no fuel benefit charge — electricity provided for an EV's business use is not a BiK, though home-charging costs paid by employer for an employee are handled under different rules (exempt up to the HMRC advisory rate of 7p/mile for EVs in 2026/27).

Salary Sacrifice OpRA Exemption for Electric Vehicles

Under the Optional Remuneration Arrangement (OpRA) rules introduced in April 2017, most benefits obtained via salary sacrifice are valued at the higher of: (a) the standard BiK value, or (b) the salary forgone. This typically removes the tax advantage of sacrifice for cars.

However, there is a critical exemption: cars with zero CO2 emissions (pure electric vehicles) with a list price under £50,000 are exempt from the OpRA uplift. This means an EV obtained through salary sacrifice is valued only at the standard BiK (4% × P11D), regardless of the salary sacrificed.

The practical effect for a higher-rate taxpayer with a £40,000 EV on sacrifice:

• Annual lease cost (the salary forgone): approximately £6,000–£9,000/year
• BiK value at standard 4%: £1,600
• Employee income tax on BiK: £640/year (40% rate)
• Salary sacrifice saves income tax on the forgone salary: £6,000 × 40% = £2,400
• Salary sacrifice saves employee NI: £6,000 × 2% = £120 (above UEL) or £6,000 × 8% = £480 (below UEL)
• Employer also saves NI on the sacrifice: £6,000 × 15% = £900/year

The OpRA exemption is scheduled to last through 2027/28 under current government guidance, making it a compelling route for employees who want an EV and whose employer offers a salary sacrifice scheme. The exemption does not apply to hybrid vehicles — only zero-emission vehicles qualify.

Pool Cars — No BiK if Genuinely Shared

A pool car is entirely exempt from BiK tax provided it meets all four conditions under section 167 ITEPA 2003:

1. The car is available to and actually used by more than one employee.
2. It is not ordinarily used by one employee to the exclusion of others.
3. Private use by any employee is merely incidental to business use.
4. The car is not normally kept overnight at or near the home of any employee.

HMRC interprets “private use” to include home-to-work commuting. If an employee regularly takes the pool car home overnight, HMRC will treat it as a personal company car for that employee. Record-keeping is essential: maintain a log showing every journey, the employee who used the car, the business purpose, and mileage — including confirmation that the car returned to the company premises at the end of each day.

Pool EVs can be particularly tax-efficient for businesses: no BiK for genuine pool use, and charging at company premises is fully deductible. The combination of a pool EV used by multiple employees for genuine business travel avoids both employee income tax and employer Class 1A NI entirely.

Capital Contribution: Reduce P11D by Up to £5,000

If you make a capital contribution (a one-off payment to your employer toward the cost of the car), the P11D value is reduced by that amount, up to a maximum of £5,000. This directly reduces the BiK value and therefore the annual income tax and Class 1A NI.

Example: £40,000 petrol car (26% CO2 rate). You contribute £5,000. Adjusted P11D: £35,000. BiK value: £35,000 × 26% = £9,100. Higher-rate employee tax: £3,640/year. Without contribution: £4,160/year. Annual saving: £520/year. The £5,000 contribution is recovered via tax savings in approximately 9–10 years — less compelling for a 3-year company car cycle where you recover only £1,560 in tax savings.

For low-BiK cars (EVs), the capital contribution has a smaller absolute impact: £40k EV, £5,000 contribution → adjusted P11D £35,000 × 4% = £1,400 BiK vs £1,600 (saving £80/year for a 40% taxpayer). The capital contribution strategy is most useful for high-emission cars where the multiplier effect on the BiK is large.

When to Give Up Your Company Car

The decision to give up a company car in favour of a cash car allowance depends on:

• Annual BiK tax cost of keeping the car (the direct tax cost).
• Running costs you avoid by not having a private car (insurance, servicing, MOT, depreciation, fuel).
• Car allowance offered (after income tax and NI on the allowance).
• Business mileage reimbursement available with a private car (HMRC advisory mileage rates — 45p/mile for the first 10,000 miles, 25p thereafter for a petrol car, 7p for EV).

A rough break-even rule: if your annual BiK tax cost exceeds the after-tax car allowance (after deducting the cost of a private car lease), giving up the company car makes sense. For high-emission petrol cars with a 40% taxpayer, BiK costs of £4,000–£6,000/year often exceed the value of the car benefit, especially if the alternative is a modestly priced private car lease.

For electric vehicles at 4% BiK, the break-even almost never favours giving up the car — the BiK tax is so low that the company EV is almost always better value than taking a cash allowance and privately leasing an EV. The salary sacrifice route (if available) makes it even more attractive, as the OpRA exemption preserves the 4% BiK rate while the lease is paid from pre-tax salary.

P11D Reporting

Employers must report company car BiK to HMRC on form P11D, submitted by 6 July following the end of the tax year (i.e. by 6 July 2027 for the 2026/27 tax year). Alternatively, employers can payroll the benefit — adding the monthly BiK value to the employee's taxable pay each month and deducting tax through PAYE in real time. Payrolling benefits has become increasingly common and is generally simpler for both employer and employee.

A copy of the P11D is provided to the employee by 6 July. Check it carefully: confirm the P11D value, CO2 rate and any fuel benefit listed. Errors in P11D values are not uncommon and can result in overpayment or underpayment of tax. If you believe your P11D is incorrect, contact your employer's payroll department first; they can submit a P11D(b) amendment. Unresolved errors can be reported to HMRC directly.

Official References

• gov.uk: Tax on company cars
• HMRC P11D working sheets (CO2 rates appendix)
• HMRC EIM: Cars, vans and related benefits
• HMRC: Optional remuneration arrangements (OpRA)