Company Car Tax and EVs in 2026/27: The 4% Question

If you drive a company car, the single most consequential number on your payslip is the benefit-in-kind rate, or BiK. It is the percentage of your car's value that HMRC treats as taxable income, and it ranges from single digits to well over a third depending on what powers the car. In the 2026/27 tax year, that gap is wider than it has ever been, and it is doing exactly what it was designed to do: pushing company car choice decisively towards electric.

Where the rates stand

For the current tax year, fully electric cars attract a BiK rate of 4%, up from 3% in 2025/26. The figure comes from HMRC's appropriate percentage tables, where a car's CO2 emissions and, for plug-in hybrids, its electric range determine the band.

Compare that with the rest of the table. A petrol car emitting 130g/km of CO2, roughly what a mid-size family SUV produces, sits in a 32% band. The worst offenders, anything over 170g/km, pay the 37% maximum. A conventionally powered company car can therefore cost its driver close to ten times the taxable benefit of an equivalent electric one.

The maths is worth spelling out, since it is simpler than most people expect. Take an electric car with a P11D value of £40,000, the list price including VAT and delivery. At 4%, the taxable benefit is £1,600 a year. A basic-rate taxpayer pays 20% of that, about £320 a year or £27 a month, and a higher-rate taxpayer £640 a year. The same car in a 32% band would generate a taxable benefit of £12,800, costing a higher-rate driver more than £5,000 a year. The choice of powertrain is worth more than most pay rises.

The multi-year schedule, and why it matters

The 4% rate is not a permanent fixture, and the trajectory is published years in advance. Electric car BiK rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30, where it caps. Even at that ceiling, an electric car remains far cheaper in tax terms than almost anything with an engine.

The known schedule is a genuine gift to anyone planning a company car, since it makes the tax cost of an EV predictable across a typical three or four-year replacement cycle. A driver ordering an electric car today can state their BiK bill for every year of the lease before the car has even been delivered. Very little else in the tax system offers that certainty.

The same predictability exposes a trap in the plug-in hybrid ranks. PHEV BiK rates currently range from 4% to 16% depending on electric range, which has kept them competitive for drivers not ready to go fully electric. But from April 2028, most plug-in hybrids in the 1 to 50g/km band move to a flat 18% rate regardless of electric range, rising to 19% the following year. A PHEV ordered now on a four-year cycle will get noticeably more expensive in tax before it goes back. That is a planning point, not a reason to panic, but it is worth knowing before you sign.

Running costs: the electricity rules

The tax advantages continue past the BiK charge itself. Electricity is not treated as fuel for benefit purposes, so there is no fuel benefit charge for charging an electric company car, the equivalent of the painful charge that applies when an employer pays for a driver's private petrol. Workplace charging provided for all staff is likewise exempt when the conditions are met.

For reimbursing business mileage, HMRC publishes advisory electricity rates alongside its quarterly advisory fuel rates, and since December 2025 there have been two of them, reflecting where the car plugs in. From 1 June 2026 the rates are 7p per mile for home charging and 15p per mile for public charging. The split is honest about the real economics: the public rate is more than double the home rate, mirroring the price gap that shapes private EV running costs too.

Employers can reimburse at these rates without creating a taxable benefit. If actual costs are higher, an employer can use its own rate with evidence. The system is not generous enough to cover every scenario, rapid motorway charging in particular can exceed 15p per mile at current prices, but it covers the common cases sensibly.

Salary sacrifice and the wider picture

Much of the recent growth in electric company cars has come through salary sacrifice schemes, where an employee gives up salary in exchange for a leased car. The BiK valuation rules for these arrangements take the higher of the salary sacrificed or the standard BiK calculation, but with electric rates at 4%, the sums usually still work strongly in the driver's favour, and the packages often bundle insurance, servicing and charging.

This matters for the wider market too. Company cars and salary sacrifice schemes have been the engine room of EV uptake, feeding the used market with three-year-old electric cars that private buyers can then buy at accessible prices. When fleet demand is strong, as it has been through 2026's record first half, everyone downstream benefits. We looked at the registration numbers behind that in our half-year review.

The honest read

The 2026/27 tax year is close to the high-water mark of the electric company car advantage. The 4% rate is the lowest it will be, the rises are scheduled and modest, and the gap to combustion cars remains enormous for the rest of the decade. For a company car driver choosing a car today, the arithmetic is unusually one-sided: an electric car costs a fraction of the tax, electricity is not a taxable fuel, and the reimbursement rates cover home charging at a rate that reflects how cheap it actually is.

The caveats are the ones that apply to EV ownership generally rather than to the tax system specifically. Make sure the car fits your mileage and charging situation, and check the eligible list if purchase price matters, which we cover in the Electric Car Grant eligible models. The tax rules will keep nudging; the car has to work for you first.

For drivers who want to look further ahead, the government has signalled changes to how electric motoring is taxed at the end of the decade, once the revenue from fuel duty fades. That conversation, and the much-debated 3p-per-mile question, is one we treat separately. For now, the company car rules are settled, published years ahead, and tilted decisively towards electric. If you are in the market for a company car this year, the numbers have rarely spoken so clearly.