Guide · 4 minute read · Updated 10 Jul 2026

How much company car tax will I pay?

A company car you can use privately is a taxable perk, and the bill is one sum: the car's P11D value multiplied by a benefit-in-kind percentage, multiplied by your marginal tax rate. The percentage is where electric and petrol part company completely.

The three-number formula

Every company car tax bill is built from the same three numbers. The P11D value is the list price including VAT, delivery and factory options, but not the first registration fee or road tax. The benefit-in-kind (BIK) percentage is set by HMRC and depends on the car's CO2 emissions. Your marginal rate is 20%, 40% or 45%, whichever band the benefit sits in on top of your salary.

Multiply them and you have the annual tax. A car is not free just because your employer bought it; you are taxed as though the yearly benefit were extra salary.

Electric versus petrol: a tenfold gap

For 2026/27 a pure electric car has a BIK rate of just 4%. Petrol and diesel cars from 51g/km of CO2 upwards sit between 17% and 37%, with most ordinary petrol models landing around 28% to 31%.

Take a £45,000 electric car. The taxable benefit is 4% of £45,000, which is £1,800. A higher-rate (40%) driver pays £720 a year, or £60 a month. A basic-rate driver pays £360.

Now a £30,000 petrol car at a 30% BIK rate. The benefit is £9,000, so the higher-rate bill is £3,600 a year, five times the tax on a car that cost half as much again. That gap is deliberate policy, and it is confirmed to widen slowly: the EV rate rises to 5% in 2027/28 and 7% in 2028/29, still a fraction of the petrol figure.

How it lands in your tax code

You do not get a separate company car invoice. HMRC folds the benefit into your PAYE tax code so the tax comes out of your normal salary across the year. The £1,800 electric benefit reduces your tax-free allowance by £1,800, so a standard 1257L code drops to roughly 1077L, and payroll deducts a little more each month.

If you change car mid-year, tell HMRC through your Personal Tax Account so the code is corrected. Otherwise you can carry the wrong deduction for months and face a balancing bill or refund later.

Salary sacrifice makes the EV case even stronger

Many employers now offer electric cars through salary sacrifice: you give up an agreed slice of gross salary and get the car lease in return. Because the sacrifice comes out before income tax and National Insurance, you only pay tax on the small 4% BIK, not on the sacrificed salary.

For a higher-rate earner that can turn a £500-a-month lease into an effective cost nearer £320 once the tax and NI savings are counted, with the BIK charge on top being only about £60. The same trick does not work for petrol cars, where the high BIK claws most of the saving straight back. Check what a sacrifice does to your take-home in the salary sacrifice calculator before you sign, and remember the lease is a fixed commitment for two or three years.

Common questions

How is company car tax calculated in the UK?

Multiply the car's P11D value by its benefit-in-kind percentage, then by your income tax rate. A £45,000 electric car at 4% gives a £1,800 benefit; a 40% taxpayer pays £720 a year. Petrol and diesel cars use much higher percentages based on CO2.

What is the electric company car tax rate for 2026/27?

Pure electric cars are taxed on a 4% benefit-in-kind rate in 2026/27, rising to 5% in 2027/28 and 7% in 2028/29. On a £40,000 EV that is a £1,600 benefit, so a higher-rate driver pays £640 a year.

Does a company car change my tax code?

Yes. HMRC reduces your tax-free allowance by the value of the benefit, so a 1257L code might fall to around 1077L for a £1,800 benefit, and payroll collects the extra tax monthly. Report a change of car quickly so the code stays right.

Is a salary sacrifice electric car worth it?

For most higher-rate earners, yes. You sacrifice gross salary before income tax and National Insurance and are only taxed on the 4% benefit-in-kind, so the effective monthly cost can be well below the headline lease. The catch is a fixed two or three year commitment.

Guidance and education, not regulated financial advice.