Company car tax explained

Company car tax is Income Tax on a taxable benefit: the car's P11D value (its list price when new, with VAT, delivery and extras) times a Benefit-in-Kind percentage. In 2026/27 that percentage is 4% for an electric car and up to 37% for petrol and diesel, so a £40,000 electric car costs a basic-rate taxpayer about £27 a month.

What is Benefit-in-Kind?

A company car you can use privately is a Benefit-in-Kind (BIK) — a perk with a cash value that HMRC taxes like income. You don't pay tax on the car's price; you pay it on a taxable benefit, worked out as the car's value times a percentage set by how clean it is. The greener the car, the smaller the benefit and the less tax you pay.

What is P11D value?

The P11D value is the car's list price: the price its manufacturer, importer or distributor published for that model, sold new in the UK, on the day before the car was first registered. It includes VAT, the delivery charge and the standard equipment, plus any optional extras fitted when the car is first made available to you. It leaves out the new car registration fee, which HMRC treats as an administration fee rather than a tax.

It is not the price your employer paid: dealer discounts and cashback don't reduce it, and a used car keeps the list price it had when new. What does reduce it is a capital contribution — money you pay towards the car or its extras is deducted, up to £5,000 in total.

• An extra added later is included too if it costs £100 or more.
• A car 15 or more years old and worth £15,000 or more is taxed on its market value instead, if that is higher.

The name comes from form P11D, the end-of-year return on which employers have reported company cars to HMRC. From April 2027 HMRC plans to have employers report company cars through payroll instead (draft legislation published in July 2026). That changes how the benefit is reported, not how the car is valued.

How CO₂ sets the rate

For petrol and diesel cars, the appropriate percentage climbs with CO₂ emissions. In 2026/27 it starts at 17% for 51–54 g/km and rises by about 1% for every extra 5 g/km, up to a 37% cap:

In 2027/28 the bands from 75 g/km stay at these rates, while the lower bands rise a point, to no more than 21%. From 2028/29 every band rises a point a year, and the maximum goes to 38%, then 39% in 2029/30.

Electric company car tax

Fully electric cars have the lowest rate: 4% of the P11D value in 2026/27 — the reason an electric company car is so cheap. The tax comes out of your pay through your tax code. For 2026/27:

The rate rises to 5% in 2027/28, then 7% in 2028/29 and 9% in 2029/30, still far below most petrol and diesel cars. For the same £40,000 car:

These figures use the 20% and 40% rates for England, Wales and Northern Ireland and assume the car is yours all year, with nothing paid towards it. At 45% the £40,000 car costs £720 a year in 2026/27. Scottish taxpayers pay different rates.

Plug-in hybrids

Plug-in hybrids (1–50 g/km) are rated by their electric-only range: 4% for 130+ miles, then 7%, 10%, 14% and 16% as the range falls below 30 miles. A longer electric range means lower tax until 2027/28. From 2028/29, 1–50 g/km plug-in hybrids move to 18%, then 19% in 2029/30, regardless of electric range. Under a temporary easement, some plug-in hybrids registered between 1 January 2025 and 5 April 2028 and affected by the newer emissions standard are treated as 1 g/km; use the BIK CO₂ figure supplied by your employer.

The diesel supplement

A 4% supplement is added to a diesel's percentage unless it meets the RDE2 standard, based on certification or recorded NOx emissions. The supplement never takes the rate above the cap. Check the certificate of conformity or ask your employer; do not assume it qualifies based only on registration year.

Private fuel benefit

If your employer also pays for your private fuel, that's a separate Benefit-in-Kind — worth £29,200 × the car's percentage in 2026/27 (electric cars are excluded). On a 30% petrol car that's an £8,760 benefit, around £3,504 a year in tax for a higher-rate payer.

Salary sacrifice company cars

Many electric company cars are offered through salary sacrifice: you give up some gross salary for the car, saving Income Tax and National Insurance on the amount sacrificed, and pay only the (low) Benefit-in-Kind tax. For low-emission cars (75 g/km or less) the normal BIK rules apply. Above 75 g/km, the “optional remuneration” rules mean you're taxed on the higher of the BIK value or the salary you gave up — which removes most of the saving. See the salary sacrifice guide.

Employer Class 1A National Insurance

You only pay Income Tax on a company car. Your employer pays Class 1A National Insurance on the same benefit — 15% in 2026/27 — so the car costs them too. That's why employers often steer towards electric cars, where the benefit (and their NI) is small.