Company Car Tax on Electric Cars: The Complete UK Guide for 2026

If you have a company car, switching to electric could save you thousands of pounds per year in tax. The Benefit in Kind (BIK) rate for electric vehicles is just 3%—compared to up to 37% for petrol cars. Here’s everything you need to know.

What is Benefit in Kind (BIK) Tax?

When your employer provides you with a company car that you can use for personal journeys, HMRC considers this a “benefit in kind”—essentially part of your compensation package that’s taxable.

The amount of tax you pay depends on:

• The car’s list price (P11D value)
• The BIK percentage rate (based on CO2 emissions)
• Your personal income tax rate (20%, 40%, or 45%)

Electric Vehicle BIK Rates

Here’s where EVs shine. The BIK rate for battery electric vehicles is dramatically lower than petrol or diesel:

Tax Year	EV Rate	Petrol (avg)
2025/26	3%	26-37%
2026/27	4%	27-37%
2027/28	5%	28-37%
2028/29	7%	29-37%

Even with the gradual increases, EVs will remain far cheaper than petrol alternatives for the foreseeable future.

Real-World Savings: A Worked Example

Let’s calculate the tax difference for a £45,000 company car:

Petrol Car (33% BIK rate)

• P11D value: £45,000
• BIK rate: 33%
• Taxable benefit: £45,000 × 33% = £14,850
• Tax (20% rate): £2,970/year
• Tax (40% rate): £5,940/year

Electric Car (3% BIK rate)

• P11D value: £45,000
• BIK rate: 3%
• Taxable benefit: £45,000 × 3% = £1,350
• Tax (20% rate): £270/year
• Tax (40% rate): £540/year

Annual Savings

Tax Rate	Petrol Tax	EV Tax	Annual Saving
20%	£2,970	£270	£2,700
40%	£5,940	£540	£5,400
45%	£6,683	£608	£6,075

A 40% taxpayer saves nearly £5,400 per year—that’s over £21,000 across a typical 4-year company car cycle!

Employer Benefits Too

It’s not just employees who benefit. Employers save on:

Class 1A National Insurance

Employers pay Class 1A NIC (13.8%) on the taxable benefit value. Lower BIK = lower employer NIC.

For our £45,000 car example:

• Petrol car: £14,850 × 13.8% = £2,049/year employer NIC
• Electric car: £1,350 × 13.8% = £186/year employer NIC
• Employer saving: £1,863/year

Capital Allowances

Electric vehicles qualify for 100% first-year capital allowances. This means businesses can deduct the full cost of an EV from their taxable profits in the year of purchase.

For a £45,000 EV, a company paying 25% corporation tax saves £11,250 in the first year.

Salary Sacrifice Schemes

Many employers offer salary sacrifice schemes for EVs. Here’s how they work:

1. You “sacrifice” part of your gross salary
2. Your employer uses this to lease an EV for you
3. You pay BIK tax on the benefit (just 3% for EVs)
4. Both you and your employer save on National Insurance

Example Salary Sacrifice Calculation

Without salary sacrifice (buying privately):

• Gross salary: £50,000
• Take-home after tax/NI: ~£38,500
• Car payment from net salary: £400/month = £4,800/year
• Remaining: ~£33,700

With salary sacrifice (£45,000 EV):

• Gross salary: £50,000
• Salary sacrifice: £6,000/year (for car lease)
• Adjusted gross salary: £44,000
• Take-home after tax/NI: ~£34,200
• BIK tax (40%): £360/year
• Remaining: ~£33,840

The salary sacrifice route provides a nearly equivalent car for slightly better overall finances—plus you get a brand new EV with maintenance included, and both you and your employer save on National Insurance.

What Cars Qualify?

To get the 3% BIK rate, the vehicle must be:

• 100% battery electric (BEV)
• Zero tailpipe emissions

Plug-in hybrids (PHEVs) don’t qualify for the 3% rate—they’re taxed based on their electric range and CO2 emissions, typically at 8-14%.

Popular Company Car EVs

Here are some popular choices and their indicative monthly BIK costs for a 40% taxpayer:

Vehicle	P11D	Monthly BIK (40%)
Tesla Model 3	£40,000	£40
BMW i4	£52,000	£52
Polestar 2	£44,000	£44
VW ID.4	£43,000	£43
Mercedes EQA	£48,000	£48
Hyundai Ioniq 6	£46,000	£46
Kia EV6	£45,000	£45

Compare these to a typical petrol company car costing £300-500+ per month in BIK tax!

Making the Switch: What to Consider

1. Home Charging

Do you have off-street parking for a home charger? While not essential, home charging dramatically improves the EV ownership experience.

2. Your Mileage

High-mileage drivers benefit most from EV running cost savings. But even moderate mileage makes EVs worthwhile given the tax advantages.

3. Journey Patterns

Consider your typical journeys. Modern EVs handle most use cases easily, but very long daily drives might require more planning.

4. Employer Policies

Check if your employer offers EV options or salary sacrifice schemes. Many companies are actively promoting EVs due to their own tax benefits.

Common Questions

Does private fuel benefit affect EV tax?

If your employer pays for your home charging, this is currently a tax-free benefit. Free workplace charging is also tax-free.

What about the “expensive car” supplement?

The £40,000 threshold that adds extra VED for expensive petrol cars doesn’t apply to EVs (until 2025).

Can I claim mileage for business trips?

Yes. The HMRC approved mileage rate for EVs is 45p per mile for the first 10,000 miles, then 25p—same as petrol cars.

The Bottom Line

Electric company cars offer the best tax deal in motoring. A 40% taxpayer with a £45,000 EV pays just £45/month in tax, compared to £500+ for an equivalent petrol car.

Combined with lower running costs, reduced maintenance, and environmental benefits, electric company cars are an easy choice for anyone with the option.

---

Want to calculate your personal savings? Try our EV savings calculator or explore all the EV incentives available to UK drivers.