Pure electric company cars are taxed at a Benefit-in-Kind rate of just 3% for the 2025/26 tax year, rising to 4% in 2026/27. That makes the company car tax rates for electric cars roughly a tenth of what applies to the highest-emitting petrol and diesel models, which sit at 37%. A higher-rate taxpayer with a £40,000 electric car pays around £480 a year in company car tax; the same driver in an equivalent petrol car in the top band would pay close to £5,920.
BIK Rates for Electric Cars Through 2029/30
The government has published BIK percentages for zero-emission cars several years ahead, so you can see what a four or five-year lease will cost from the outset. The rates rise gradually, but stay well below anything a combustion car attracts.1GOV.UK. Work Out the Appropriate Percentage for Company Car Benefits (480 Appendix 2)
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
- 2028/29: 7%
- 2029/30: 9%
One thing to notice: the annual increase steps up from 1 percentage point to 2 percentage points in 2028/29. If you’re weighing a longer lease, the tax bill in the later years grows faster than in the early ones.2GOV.UK. Income Tax: Company Car Tax Rates 2028 to 2030 Even so, 9% in 2029/30 is a long way below the 37% top band that applies to cars emitting 170 g/km or more of CO2.
How the Tax Is Calculated
Three numbers determine what you pay: the car’s P11D value, the BIK percentage for its emissions, and your personal income tax rate. Multiply them together for the annual tax bill.
P11D Value
The P11D value is the car’s list price the day before it was first registered, including VAT, delivery, and any factory or dealer-fitted extras. It excludes the first registration fee and annual vehicle excise duty. The rules are set out in Section 121 of the Income Tax (Earnings and Pensions) Act 2003.3HM Revenue & Customs. Employment Income Manual – EIM24015
Your Income Tax Band
For 2025/26, England, Wales, and Northern Ireland use these bands:
- Basic rate (20%): taxable income of £12,571 to £50,270
- Higher rate (40%): £50,271 to £125,140
- Additional rate (45%): over £125,140
Scottish taxpayers follow different bands set by the Scottish Parliament, so the final figure can differ.4GOV.UK. Income Tax Rates and Personal Allowances
A Worked Example
Take a pure electric car with a P11D value of £40,000 in 2025/26, and a higher-rate taxpayer at 40%:
- BIK value: £40,000 × 3% = £1,200
- Annual tax: £1,200 × 40% = £480, or about £40 a month
A basic-rate taxpayer with the same car would pay £240 for the whole year. HMRC’s online calculator will run the numbers for any specific vehicle.5GOV.UK. Calculate Tax on Employees’ Company Cars
Plug-in Hybrids Are Not Taxed the Same Way
If the car you’re being offered is a plug-in hybrid rather than a pure battery-electric, the 3% rate does not apply. Vehicles emitting between 1 and 50 g/km follow a separate scale based on electric-only range. For 2025/26:1GOV.UK. Work Out the Appropriate Percentage for Company Car Benefits (480 Appendix 2)
- Over 130 miles electric range: 3%
- 70 to 129 miles: 6%
- 40 to 69 miles: 9%
- 30 to 39 miles: 13%
- Under 30 miles: 15%
Every band rises by one percentage point in 2026/27. The manufacturer’s WLTP electric range on the certificate of conformity is what sets the band, not any real-world estimate. A hybrid with a short electric range saves very little tax compared with a conventional car, so the gap between a short-range plug-in hybrid at 15% and a pure electric at 3% is enough to swing the whole cost comparison.
Salary Sacrifice Makes Electric Cars Cheaper Still
Salary sacrifice is where the real savings sit for many drivers. You agree to give up part of your gross salary and the employer leases the car for you. Because the sacrifice comes off your pay before income tax and National Insurance, you pay less of both.
Under the optional remuneration arrangements rules, cars emitting 75 g/km of CO2 or less are taxed only on the normal BIK cash equivalent, not compared against the salary given up. So a zero-emission car is taxed on its low BIK percentage no matter how much salary you sacrificed to get it.6GOV.UK. Optional Remuneration Arrangements (480: Appendix 12)
Cars above 75 g/km are taxed on the higher of the BIK cash equivalent or the salary given up, which effectively removes the tax advantage. That is why salary sacrifice schemes are dominated by electric vehicles.
Charging: What’s Taxable and What Isn’t
Electricity supplied by your employer to charge an electric or plug-in hybrid car at or near the workplace is exempt from both income tax and National Insurance, under Section 237A of ITEPA 2003. The exemption depends on charging facilities being available to employees generally rather than just to selected individuals.7GOV.UK. Workplace Charging for All-Electric and Plug-in Hybrid Vehicles
Home charging works differently. If your employer reimburses electricity for charging at home, that reimbursement should go through HMRC’s advisory electricity rate for business mileage to stay tax-free. Pay above that rate, or reimburse private mileage as well, and a taxable fuel benefit can arise.8GOV.UK. Advisory Fuel Rates
How You Actually Pay the Tax
You do not usually receive a separate bill. Your employer reports the car benefit to HMRC, either on a P11D form after the tax year or through payrolling during the year.9GOV.UK. Expenses and Benefits for Employers: Reporting and Paying10GOV.UK. Tax Employees’ Benefits and Expenses Through Your Payroll With the P11D route, HMRC adjusts your tax code so the BIK tax comes out of your monthly pay through PAYE. Mandatory payrolling of most benefits is expected from April 2027, which will largely replace the P11D process.
It is worth checking your tax code on your personal tax account when a new company car starts, and again if you change car. A previous vehicle still showing, or the wrong emissions band applied, means you either overpay across the year or face an underpayment to settle later. Contact HMRC as soon as you spot a discrepancy.11GOV.UK. P11D