What is the difference between P11D value and on-the-road (OTR) price?

The OTR price includes the Government First Registration Fee and the first-year Vehicle Excise Duty (VED / road tax). The P11D value excludes both of these statutory fees, meaning P11D is slightly lower than the full OTR showroom price.

Does an employee pay National Insurance on a company car?

No. Employees do not pay Class 1 Employee National Insurance on non-cash benefits-in-kind. Only the employer pays Class 1A National Insurance (fixed at 15.0% in 2026/27) on the taxable BIK value.

How does HMRC collect company car tax?

HMRC collects company car tax by adjusting your PAYE tax code on your monthly payslip. The annual taxable BIK value is deducted from your Personal Allowance, causing your employer to withhold the extra income tax evenly across your 12 monthly paychecks.

Can I claim tax-free mileage when driving my company car for business?

If your employer does not pay for fuel, you can claim HMRC Advisory Fuel Rates (AFR) tax-free for business journeys. For electric company cars, you can claim the Advisory Electricity Rate (AER, 9p per mile).

What is the BIK rate for pure electric vehicles in 2026/27?

For the 2026/27 tax year, the Benefit-in-Kind (BIK) rate for pure zero-emission electric vehicles (0g/km CO2) is 3% of the P11D list price.

How does the free private fuel benefit multiplier work?

If your employer pays for fuel used on private journeys, HMRC applies a statutory multiplier of £28,200 for 2026/27. The taxable fuel benefit is £28,200 multiplied by your car’s BIK percentage, taxed at your marginal income tax rate.

Electric Company Car Tax UK: 2026/27 Tax Bands & EV Incentives

Published: August 2026 | Fact-Checked & Audited By: Tax Calculators for UK Editorial Team (Chartered Tax Advisor & Accountant)

This guide is fully updated for the 2026/27 HMRC tax year. All calculations and tax rules have been audited against official UK legislation and statutory guidance.

In recent years, the UK government has restructured the company car tax system to penalize fossil-fuel vehicles and reward the adoption of zero-emission transportation. This strategy has made electric vehicles (EVs) the most tax-efficient benefits-in-kind available to UK employees and business directors. This detailed guide analyzes electric company car tax rates (BIK) for the 2026/27 tax year, explains hybrid vehicle tax rules, details corporate capital allowances, and discusses salary sacrifice car schemes.

1. The 2% BIK Rate: Why Electric Company Cars are Incredibly Cheap

For the 2026/27 tax year, the Benefit-in-Kind (BIK) rate for zero-emission electric vehicles is fixed at 2%. This extremely low rate makes driving a premium electric car highly affordable. For example, if you choose a Tesla Model 3 with a P11D value of £42,000, your annual taxable benefit is calculated as follows:

Taxable Value = £42,000 × 2% = £840

Depending on your tax band, the annual tax you pay is:

Basic Rate (20%): £168 per year (£14 per month)
Higher Rate (40%): £336 per year (£28 per month)
Additional Rate (45%): £378 per year (£31.50 per month)

2. Plug-in Hybrids (PHEVs): The Importance of Electric Range

Plug-in hybrid cars also receive tax incentives, but their BIK bands are determined by their CO2 emissions AND their electric-only driving range. HMRC places hybrid vehicles with CO2 emissions between 1g/km and 50g/km into five distinct bands based on the mileage they can travel on battery power. For example, hybrid cars that can travel 130 miles or more on a single charge qualify for the 2% BIK rate. However, hybrid cars with an electric range of under 30 miles face a 14% BIK rate, which increases the tax bill significantly.

3. Corporate Tax Incentives: 100% First-Year Capital Allowances

If you are a limited company director, buying a brand-new electric vehicle directly through the company offers substantial corporate tax savings. New and unused zero-emission cars qualify for 100% First-Year Allowances (FYA). This means the entire purchase price of the vehicle can be deducted from your company’s taxable profit in the year of acquisition. If your company pays the marginal corporation tax rate of 25%, buying a £40,000 electric vehicle reduces your Corporation Tax liability by £10,000 immediately.

4. Step-by-Step Mathematical Calculation

Let’s run a calculation for a company director extracting profits at the higher rate (40%) who acquires an EV through the company:

EV Purchase Price: £50,000.
Corporation Tax Offset: 100% FYA allows the company to deduct the full £50,000 from profits, saving £12,500 in Corporation Tax (assuming 25% rate).
Director Personal BIK Tax: BIK rate is 2%. Taxable benefit: £50,000 × 2% = £1,000.
Personal Income Tax: £1,000 × 40% = £400.00 annual personal tax due.
Net Position: The company gets a premium vehicle and saves £12,500 in Corporation Tax, while the director pays only £400 a year in personal tax. This is highly tax-efficient compared to extracting £50,000 as salary to buy the car privately.

5. Frequently Asked Questions (FAQs)

Q1: Does my employer pay tax on my electric company car?
A: Yes. Employers must pay Class 1A National Insurance Contributions (NICs) on benefits-in-kind. However, because the taxable BIK value for electric cars is so low (2%), the employer’s Class 1A NI liability (currently 13.8%) is minimal.

Q2: Can I lease an EV through a Salary Sacrifice scheme?
A: Yes. EV salary sacrifice schemes allow employees to pay for lease cars out of their gross salary, saving Income Tax, NI, and pension contributions, while only paying the 2% BIK rate.

Q3: Will electric car tax rates increase in the future?
A: Yes. The government has announced that electric vehicle BIK rates will increase by 1% each year, reaching 5% by the 2027/28 tax year.

Q4: Is charging my car at work taxable?
A: No. Workplace EV charging provided by the employer is tax-free under HMRC rules.

Q5: Can I claim tax-free business mileage in an electric car?
A: Yes, using the Advisory Electricity Rate (AER), currently 7p per mile.

Q6: Are electric vans also cheap to run?
A: Yes, electric vans have a £0.00 BIK rate. Check our Company Car BIK Calculator to compare.

Q7: What is the capital contribution limit?
A: Up to £5,000 can be contributed by the employee to reduce the P11D base.

Q8: Can a company reclaim VAT on an EV?
A: You can only reclaim 100% VAT if the car is used purely for business. For leased cars with private use, you can usually reclaim 50% of the VAT.

Calculate Company Car & Vehicle Tax

Put the figures from this guide into practice with our free, HMRC-audited interactive calculation tools:

Company Car Benefit-in-Kind (BIK) Calculator → Compare 2% EV rates against petrol/diesel P11D tax deductions. Salary Sacrifice & EV Car Calculator → Calculate National Insurance and Income Tax savings on vehicle salary sacrifice.