Tesla Model 3 company car tax is unusually low because the car produces no tailpipe CO2. For the 2026/27 tax year the benefit-in-kind (BiK) rate on a zero-emission car is 4%, so a Model 3 with a P11D value of £40,000 gives a taxable benefit of £1,600. A basic-rate taxpayer pays around £320 a year on that, a higher-rate taxpayer about £640, and an additional-rate taxpayer £720. The same £40,000 as a diesel could cost a higher-rate taxpayer nearly £5,000.
How the Tax Is Calculated
Three numbers drive the bill: the car’s P11D value, the BiK percentage set by HMRC, and your income tax band. Multiply them together and you have the annual tax.
The P11D value is the list price on the day before first registration, including VAT and delivery charges but excluding the first registration fee, which HMRC treats as an admin cost rather than part of the price.1HM Revenue & Customs. How to Work Out the Benefit of a Company Car (480: Chapter 12) Factory-fitted and dealer-fitted options count too, so premium paint, larger wheels, or the enhanced autopilot package all push the figure up.
If you contribute your own money toward the purchase price, that comes off the P11D value, up to a maximum of £5,000.2GOV.UK. Employment Income Manual – EIM24355 – Car Benefit Calculation Step 3: Capital Contributions: The Amount Deductible A £3,000 capital contribution on a £42,000 car brings the P11D value down to £39,000. Anything above £5,000 has no further effect.
BiK Rates for the Model 3
Because the Model 3 emits zero CO2 at the tailpipe, it sits at the bottom of HMRC’s BiK table. The published rates for zero-emission cars are:3HM Revenue & Customs. CO2 Emissions Tables of Rates
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
The rate rises one percentage point a year and is capped at 5% from 2027/28 onward, so you have a clear planning horizon. Even at the capped rate the figure is a fraction of what a combustion car attracts.
What You Would Actually Pay
Take a Tesla Model 3 with a P11D value of £40,000 in 2026/27. The taxable benefit is £40,000 × 4% = £1,600. What lands in your payslip depends on your marginal tax band:4GOV.UK. Income Tax Rates and Personal Allowances
- Basic rate (20%): £320 per year, about £27 a month
- Higher rate (40%): £640 per year, about £53 a month
- Additional rate (45%): £720 per year, about £60 a month
The tax is collected through your tax code, so the deduction happens automatically each month once HMRC has been notified of the car. Check your payslip after the car is delivered to confirm the code has been updated.
How That Compares to Petrol or Diesel
Keep the £40,000 P11D value and swap the Model 3 for a diesel emitting around 130 g/km of CO2, which carries a BiK rate of about 31%. The taxable benefit jumps to £12,400, and a higher-rate taxpayer would owe £4,960 a year. That is more than £4,300 of annual saving for choosing the Model 3.3HM Revenue & Customs. CO2 Emissions Tables of Rates
Even a fairly efficient petrol car in the 51–54 g/km band sits at 17% in 2026/27, producing a £6,800 taxable benefit and a £2,720 annual bill for a higher-rate taxpayer. The electric advantage holds across every band and every realistic comparison vehicle.
No Car Fuel Benefit Charge
Where an employer pays for private fuel in a petrol or diesel company car, a separate car fuel benefit charge applies on top of the standard BiK. That charge does not apply to fully electric cars: for a vehicle that cannot emit CO2, electricity is not classified as “fuel” under the rules, so your employer can cover the cost of charging without creating an additional taxable benefit.5GOV.UK. Expenses and Benefits: Company Cars and Fuel
If your employer installs charge points at or near the workplace and makes them available to staff generally, the electricity used is entirely exempt from income tax and National Insurance. That exemption covers both fully electric and plug-in hybrid vehicles.6GOV.UK. Workplace Charging for All-Electric and Plug-In Hybrid Vehicles
Salary Sacrifice
Most Tesla Model 3 company cars in the UK are provided through salary sacrifice, where part of your gross pay is exchanged for the car. Because the deduction comes out before income tax and National Insurance, both are saved on the amount sacrificed. Zero-emission cars are exempt from the Optional Remuneration Arrangements (OpRA) rules, so the BiK is calculated using the low 4% rate rather than being compared to the salary given up.7GOV.UK. Optional Remuneration Arrangements (480: Appendix 12) This exemption is the reason the maths works so well on electric cars specifically.
The combined tax and NI savings often mean the effective cost of running a Model 3 through salary sacrifice is 30–40% below the cost of leasing one privately. The trade-offs deserve honest thought before you sign. A lower gross salary can shrink pension contributions if your scheme calculates them as a percentage of pay; sacrificing £5,000 could cost you and your employer several hundred pounds a year of pension input in a defined contribution scheme. Defined benefit pensions, common in the public sector, are usually based on pre-sacrifice salary, so the effect there is smaller.
Mortgage lenders normally assess affordability using your post-sacrifice gross income, which can reduce what you are able to borrow. Statutory maternity, sick, and redundancy pay can also be affected if the sacrifice pushes your gross below the relevant thresholds. If a major borrowing decision is on the horizon, weigh the timing.
Reimbursement for Business Mileage
When you use the car for business journeys and pay for the electricity yourself, your employer can reimburse you at HMRC’s advisory electricity rates. From 1 June 2026 the rates are 7 pence per mile for home charging and 15 pence per mile for public charging.8GOV.UK. Advisory Fuel Rates If you use a mix, the reimbursement can be split proportionally on any fair and reasonable basis. Employers may pay more than the advisory rate where they can evidence higher actual costs; anything above the rate without evidence becomes taxable pay. Hybrid cars do not use the electric rate and must fall back on the petrol or diesel figures.
If the Business Is Buying the Car
The tax advantages extend to the buyer as well as the driver. A company purchasing a new, unused zero-emission car can claim a 100% first-year capital allowance, deducting the full cost from taxable profits in the year of purchase.9GOV.UK. Claim Capital Allowances: 100% First-Year Allowances On a £42,000 Model 3 the whole amount reduces the corporation tax bill immediately rather than being written down over several years. The current extension runs to 31 March 2027 for corporation tax and 5 April 2027 for income tax.10GOV.UK. Capital Allowances: Extension of First-Year Allowances for Zero-Emission Cars and Chargepoints
The employer also pays Class 1A National Insurance on the taxable benefit, at 15% for 2025/26.11GOV.UK. National Insurance Rates and Categories On the £1,600 benefit for a £40,000 Model 3 in 2026/27, the Class 1A bill is £240 a year. The diesel comparator at 31% would cost the employer £1,860 on the same list price, so the savings sit on both sides of the arrangement.5GOV.UK. Expenses and Benefits: Company Cars and Fuel