Company Car Tax Bandings: CO2 Bands, PHEV Range, Diesel Supplement

Company car tax bands in the UK run from 4% for a zero-emission electric car up to a maximum of 37% for the highest-polluting models in the 2026/27 tax year. The band, set by your car’s official CO2 emissions, is applied to the vehicle’s list price to produce a taxable benefit, and you then pay income tax on that figure at your marginal rate.¹ On a £40,000 car, that means a fully electric model produces a tax bill roughly a tenth of what you would pay on a high-emission petrol equivalent. Getting the band right, and knowing which adjustments apply, changes what leaves your payslip every month.

The 2026/27 CO2 Bands

Every company car is given a benefit-in-kind (BIK) percentage based on its official CO2 emissions in grams per kilometre. A pure electric car sits at 4%. Each step up the emissions ladder generally adds one percentage point, until you hit the 37% ceiling at 155 g/km and above. The percentage cannot exceed 37% no matter what supplements or adjustments apply.¹

The key 2026/27 bands for petrol and hybrid cars registered from April 2020 onward:

0 g/km: 4%
1–50 g/km: 4% to 16%, depending on electric range
51–54 g/km: 17%
55–59 g/km: 18%
60–69 g/km: 19–20%
70–79 g/km: 21%
80–99 g/km: 22–25%
100–129 g/km: 26–31%
130–154 g/km: 32–36%
155 g/km and above: 37%

HMRC publishes the full table in 5 g/km increments in Appendix 2 of its 480 guidance, which is worth bookmarking if you are comparing specific models.¹

Plug-In Hybrid Range Bands

Cars emitting between 1 and 50 g/km sit in their own sub-banding system. Instead of CO2 alone, HMRC looks at how far the car can travel on electric power before the battery needs charging. Longer electric range, lower percentage. The 2026/27 thresholds:²

130 miles or more: 4%
70–129 miles: 7%
40–69 miles: 10%
30–39 miles: 14%
Under 30 miles: 16%

The pound difference is substantial. On a £45,000 plug-in hybrid, the gap between a 130-mile electric range and a 25-mile range is £5,400 of additional taxable benefit per year. For a 40% taxpayer, that is roughly £2,160 more in annual tax.¹ The electric range figure has to come from the vehicle’s official certificate of conformity, using WLTP testing for cars first registered on or after 6 April 2020. Manufacturer marketing claims do not count.²

The Diesel Supplement

Diesel cars that do not meet the Real Driving Emissions 2 (RDE2) standard face a 4% surcharge on top of their CO2-based percentage.³ It applies to cars running solely on diesel, not to diesel hybrids. Most new diesels sold today meet RDE2, but older fleet vehicles and some used models do not. A car that would sit at 30% jumps to 34%. The 37% cap still applies, so a diesel at 35% only reaches 37%, not 39%. Check the V5C or ask the manufacturer before signing anything.

What Counts as the List Price

The BIK percentage is applied to the P11D value of the car, not the price your employer paid. The P11D value is the manufacturer’s list price on the day before the car was first registered, including VAT and delivery charges but excluding the registration fee itself. Any fleet discount your employer negotiated is irrelevant.⁴

Accessories fitted when the car is first made available are added to the list price. Accessories added later count too, at their list price plus fitting charges and VAT, so an upgraded tow bar six months in still lands in the calculation. Second-hand cars use the original list price when new, not the used purchase price.⁴

You can reduce the P11D value by making a one-off capital contribution toward the cost of the car. HMRC caps the deduction at £5,000, even if you contribute more.⁵ On a £40,000 car at 20% BIK, a £5,000 contribution takes £1,000 off the taxable benefit, saving a basic-rate taxpayer £200 a year and a higher-rate taxpayer £400. The reduction applies for as long as you hold the car, so it compounds over a three- or four-year agreement.

Turning the Band Into a Tax Bill

Once you have the P11D value and the percentage, multiply them to get the taxable benefit, then apply your income tax rate. The 2026/27 rates for England, Wales, and Northern Ireland:⁶

Basic rate (£12,571–£50,270): 20%
Higher rate (£50,271–£125,140): 40%
Additional rate (over £125,140): 45%

Take a fully electric car with a list price of £42,000. The 4% band gives a taxable benefit of £1,680. A basic-rate taxpayer pays £336 for the year, about £28 per month. A higher-rate taxpayer pays £672, or £56 per month. Compare that with a 130 g/km petrol car on the same £42,000 list price. At 32%, the taxable benefit is £13,440, costing a higher-rate taxpayer £5,376 for the year.

Scottish taxpayers use different rates, including a 19% starter rate, 21% intermediate rate, 42% higher rate, and 48% top rate, so your bill will differ from a colleague on the same salary south of the border.

HMRC collects the tax by adjusting your PAYE code, effectively reducing your personal allowance by the value of the car benefit. That means higher deductions from each pay packet, not a separate bill.⁷ If your car changes mid-year or you hand it back, check your tax code notice to confirm the adjustment has gone through.

Fuel Provided for Private Use

If your employer also pays for fuel you use privately, that is a separate taxable benefit. HMRC applies a fixed multiplier, set at £29,200 for 2026/27, multiplied by the same BIK percentage.⁸ For a car at 25% BIK, the fuel benefit is £7,300 of additional taxable income, costing a 40% taxpayer £2,920 extra.

The charge applies in full even for a small amount of private fuel. The only way to avoid it is to reimburse your employer for every drop of private fuel. Partial reimbursement does not reduce it at all. For anyone with modest private mileage, the benefit is often not worth accepting.

Reducing the Taxable Benefit

Beyond the capital contribution, two other adjustments can bring the figure down.

Regular payments made to your employer specifically for private use of the car are deducted from the taxable benefit after the percentage has been applied. There is no upper limit on this deduction, and it can reduce the benefit all the way to zero. The payment has to be for private use, not for something else bundled in.⁷

Part-year availability also cuts the charge proportionally. A car counts as unavailable on any day before it was first provided to you, after it was withdrawn, or during a continuous period of 30 or more days when it was off the road.⁹ Short gaps do not count. Three weeks in the garage waiting for parts still counts as available time.

Cars provided through salary sacrifice schemes are still taxed as a benefit in kind and must be reported to HMRC. The employee pays tax on the higher of the BIK value or the salary given up.¹⁰

Where the Bands Are Heading

The government has published BIK rates several years ahead, which helps anyone choosing a car on a long-term lease. For zero-emission vehicles, the percentage rises to 5% in 2027/28 and stays there through 2028/29. The top band increases to 38% in 2028/29, and every other emissions band also rises by one percentage point that year.¹ The gap between electric and petrol stays large. A pure electric car moving from 4% to 5% adds a modest amount to most bills, while petrol and diesel cars face a tightening squeeze each year.

1
GOV.UK. Work Out the Appropriate Percentage for Company Car Benefits (480: Appendix 2)
2
Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Section 139
3
GOV.UK. Income Tax: Cars Appropriate Percentage – Increasing the Diesel Supplement
4
GOV.UK. How to Work Out the Benefit of a Company Car (480: Chapter 12)
5
GOV.UK. Employment Income Manual – Car Benefit Calculation Step 3: Capital Contributions
6
GOV.UK. Income Tax Rates and Personal Allowances
7
GOV.UK. Tax on Company Cars
8
GOV.UK. Increase to Van Benefit Charge and Fuel Benefit Charges for Cars and Vans
9
GOV.UK. Employment Income Manual – Reduction in Car Benefit Charge: Meaning of Unavailable
10
GOV.UK. Company Cars and Fuel: What’s Exempt