A fully electric company car is taxed at a Benefit-in-Kind rate of just 4% for the 2026/27 tax year, which makes electric car BiK by far the cheapest way to run a company vehicle. On a £40,000 EV, that works out to a taxable benefit of £1,600 a year. A basic-rate taxpayer owes £320 (about £27 a month); a higher-rate taxpayer owes £640 (about £53 a month).1Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Chapter 6 That is the whole BiK bill for driving a £40,000 car.
How the Calculation Works
Three numbers decide what you pay: the car’s P11D value, the BiK percentage for its emissions, and your income tax rate. Multiply them together to get the annual tax.
The BiK percentage is pegged to CO2. A fully electric car emits 0g/km, so it sits at the bottom of the scale. Petrol and diesel cars above 170g/km hit the 37% ceiling, meaning the same £40,000 list price would produce a £5,920 annual bill for a higher-rate taxpayer.1Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Chapter 6 The gap between electric and combustion is the whole point of the current rate structure.
BiK Rates for Electric Cars, 2025 to 2030
The zero-emission rate rises gradually through the decade, but stays well below any combustion alternative:
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
- 2028/29: 7%
- 2029/30: 9%
Plug-in hybrids with CO2 emissions of 1–50g/km get treatment that depends on electric-only range. A PHEV with 130 miles or more of electric range matches the pure-EV rate of 4%; one with under 30 miles of range sits at 16%.1Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Chapter 6
What the P11D Value Actually Is
The P11D value is the car’s list price including VAT, delivery, and any factory-fitted or dealer-fitted optional extras. It excludes the first registration fee and the first year’s vehicle excise duty. This is the published list price for that configuration, not what your employer paid. A big fleet discount does not lower your BiK bill.
You can bring the P11D value down by making a one-off capital contribution toward the car. HMRC allows up to £5,000, deducted pound for pound for as long as you keep the car.2GOV.UK. Employment Income Manual EIM24355 – Car Benefit Calculation Step 3: Capital Contributions On a £50,000 EV in 2026/27, a £5,000 contribution drops the taxable benefit from £2,000 to £1,800, saving a higher-rate taxpayer £80 a year. The payment has to be a capital contribution toward the vehicle itself, not a running payment for fuel or insurance.
Separately, monthly payments you make toward the private use of the car reduce the taxable benefit directly, though not below zero.
How Your Tax Band Changes the Bill
Your income tax rate is the final multiplier. In England, Wales, and Northern Ireland for 2026/27:
- Basic rate (20%): £12,571 to £50,270
- Higher rate (40%): £50,271 to £125,140
- Additional rate (45%): over £125,140
A higher-rate taxpayer pays exactly double what a basic-rate taxpayer owes on the same car; an additional-rate taxpayer pays 2.25 times as much.3GOV.UK. Income Tax Rates and Personal Allowances The 4% BiK rate keeps the underlying benefit small, so even the top multiplier produces manageable numbers.
If You Pay Scottish Income Tax
Scotland has six bands rather than three for 2026/27, with a higher rate of 42% kicking in at £43,663.4Scottish Government. Scottish Income Tax 2026 to 2027: Technical Factsheet On the £40,000 EV example, a Scottish higher-rate taxpayer pays £672 versus £640 south of the border. The £32 annual difference is worth knowing when you run your own numbers.
Salary Sacrifice Is Where the Real Savings Sit
Under a salary sacrifice scheme, you give up a slice of gross salary in exchange for the employer providing the car. Because the reduction happens before income tax and National Insurance, both you and your employer pay less in deductions.
Normally HMRC’s Optional Remuneration Arrangement rules would tax you on whichever is higher: the salary given up or the cash value of the benefit. Electric cars with emissions of 75g/km or less are specifically exempt from OpRA.5GOV.UK. Optional Remuneration Arrangements You are only taxed on the BiK value, not the sacrificed salary. That single exemption is why salary sacrifice works so well for EVs and barely works for other benefits.
The savings depend on your tax band. A basic-rate taxpayer typically saves 25–30% compared with leasing the same car privately; higher-rate and additional-rate taxpayers can save 40% or more. Employers also save the 15% employer National Insurance they would have paid on the sacrificed portion,6GOV.UK. National Insurance Rates and Categories: Contribution Rates and many pass some of that back through lower lease prices.
Two limits to keep in mind. The sacrifice must not push your remaining pay below the National Minimum Wage, and the arrangement needs a formal change to your employment contract.
Charging Costs and Business Mileage
When you drive a company EV on business, your employer can reimburse charging costs tax-free up to HMRC’s Advisory Electricity Rate. From June 2026 the rates are 7 pence per mile for home charging and 15 pence per mile for public charging. Mixed journeys can be split between the two rates as long as the calculation is fair and reasonable. If actual public charging exceeds 15p per mile at a particular charger, your employer can reimburse the higher amount provided they can show the real cost is genuinely higher.7GOV.UK. Advisory Fuel Rates
Electricity Your Employer Pays For
The car fuel benefit charge does not apply to fully electric vehicles. Under the Income Tax (Earnings and Pensions) Act 2003, electricity is not classified as fuel for a car that cannot emit CO2 by being driven. So your employer can cover all your electricity, including for personal miles, without triggering the flat-rate fuel benefit charge that hits petrol and diesel cars for thousands a year. Workplace charging has its own exemption: if your employer installs chargers at the office, the electricity you use there for a company car creates no additional tax liability.8GOV.UK. Workplace Charging for All-Electric and Plug-in Hybrid Vehicles These exemptions do not apply to hybrids, which are treated as petrol or diesel for fuel benefit purposes.
Vehicle Excise Duty
Electric cars lost their free road tax from April 2025. Zero-emission vehicles registered on or after 1 April 2025 pay £10 for the first year and then the £200 standard rate.9GOV.UK. Vehicle Tax for Electric, Zero and Low Emission Vehicles This sits alongside BiK, not in place of it, and applies whether the car is a company vehicle or personally owned.
If the list price is above £50,000, the expensive car supplement adds £440 a year on top of the standard rate, bringing the total to £640. The surcharge runs for five years from the second year of registration.9GOV.UK. Vehicle Tax for Electric, Zero and Low Emission Vehicles The threshold uses the published list price before any discount, so a £52,000 car bought by your employer for £47,000 still triggers it. On salary sacrifice and standard company car schemes, the employer usually handles VED, and the cost tends to be built into the monthly figure.
Electric Vans
If your employer provides an electric van rather than a car, the taxable benefit for a zero-emission van is nil. You pay no BiK on a fully electric van, regardless of list price or tax band, as long as it is available for private use alongside business use. Conventional vans carry a flat-rate benefit charge, so the electric exemption is a meaningful saving for anyone whose work vehicle is a van.
How You Actually Pay It
You do not send BiK tax to HMRC yourself. HMRC adjusts your tax code so the right amount comes out of your salary each month through PAYE.10GOV.UK. Tax on Company Benefits If you get a new company car or hand one back partway through the tax year, update your details with HMRC so your tax code is corrected quickly rather than in a lump adjustment later.11GOV.UK. Check or Update Your Company Car Tax