Last updated: 18 October 2026
The company car tax system is designed to reward ‘green’ choices. Drivers who choose zero-emission and low-emission cars pay far less tax than those driving high-emission petrol and diesel cars.
The current system has been in place, in broadly the same form, since April 2002. It taxes a percentage of the car’s list price, and the percentage depends on the car’s carbon dioxide (CO2) emissions.
Company Car Tax Changes: 2026/27
For 2026/27, the appropriate percentage for zero-emission cars and cars emitting less than 75g/km of CO2 has gone up by one percentage point. The rates for all other cars are unchanged from 2025/26, with a maximum of 37%. Further rises for electric cars are already set for the next three years.
The Appropriate Percentage
The taxable benefit is the car’s list price, plus accessories, multiplied by the appropriate percentage. The table below shows the appropriate percentages for petrol cars, and for diesel cars that meet the RDE2 standard, for 2026/27:
| CO2 emissions | 2026/27 | CO2 emissions | 2026/27 |
| 0 (electric cars) | 4% | 100 – 104g/km | 26% |
| 1 – 50g/km | 4% – 16% (see below) | 105 – 109g/km | 27% |
| 51 – 54g/km | 17% | 110 – 114g/km | 28% |
| 55 – 59g/km | 18% | 115 – 119g/km | 29% |
| 60 – 64g/km | 19% | 120 – 124g/km | 30% |
| 65 – 69g/km | 20% | 125 – 129g/km | 31% |
| 70 – 74g/km | 21% | 130 – 134g/km | 32% |
| 75 – 79g/km | 21% | 135 – 139g/km | 33% |
| 80 – 84g/km | 22% | 140 – 144g/km | 34% |
| 85 – 89g/km | 23% | 145 – 149g/km | 35% |
| 90 – 94g/km | 24% | 150 – 154g/km | 36% |
| 95 – 99g/km | 25% | 155g/km and above | 37% |
For example, an employee with a £30,000 petrol company car emitting 120g/km has a taxable benefit of £9,000 (30%) for 2026/27. That costs a basic rate taxpayer £1,800 in tax and a higher rate taxpayer £3,600. The employer pays Class 1A National Insurance of £1,350 at 15%.
Alternative Valuation Rules
If a car is provided through an optional remuneration arrangement (OpRA), such as salary sacrifice or a cash alternative, and its CO2 emissions are more than 75g/km, the taxable amount is the higher of the normal car benefit and the salary or cash given up. Cars emitting 75g/km or less, including electric cars, are exempt from this rule, which is why electric car salary sacrifice schemes are so popular.
Diesel Supplement
Diesel cars that do not meet the Real Driving Emissions 2 (RDE2) standard pay a 4% supplement on top of the petrol percentage, up to the 37% maximum. RDE2 limits real-world nitrogen oxide (NOx) emissions to 80mg/km. Diesel cars that meet RDE2, which in practice means cars certified to the Euro 6d standard, do not pay the supplement and use the petrol rates above.
Vehicle Inspection Tool
You can check whether a car meets Euro 6d using the vehicle enquiry service on GOV.UK (https://vehicleenquiry.service.gov.uk) or on the car’s V5C registration document. On payroll and P11D forms, diesel cars that meet RDE2 are reported as fuel type ‘F’, and those that do not are reported as type ‘D’.
Electric and Hybrid Cars
Fully electric cars are taxed at 4% for 2026/27. The percentage then rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. For more on running costs, see our guide to electric cars and hybrid mileage rates.
Plug-in hybrids emitting 1 to 50g/km are taxed according to their electric-only range:
| CO2 emissions | Electric Range | Appropriate Percentage 2026/27 |
| 0 | N/A | 4% |
| 1 – 50g/km | 130 miles or more | 4% |
| 1 – 50g/km | 70 – 129 miles | 7% |
| 1 – 50g/km | 40 – 69 miles | 10% |
| 1 – 50g/km | 30 – 39 miles | 14% |
| 1 – 50g/km | Less than 30 miles | 16% |
Compared with the £30,000 petrol car above, a £30,000 electric car has a taxable benefit of just £1,200. That is a tax saving of £3,120 a year for a higher rate taxpayer and £1,560 for a basic rate taxpayer.
The employer also saves £1,170 in Class 1A National Insurance.
Fuel
Free fuel for private motoring in a company car is rarely worthwhile unless private mileage is very high. The fuel benefit is the car’s appropriate percentage multiplied by the fuel benefit multiplier, which is £29,200 for 2026/27. So for a car taxed at 30%, the fuel benefit is £8,760, costing a higher rate taxpayer £3,504 a year in tax. In many cases the tax on the fuel is more than the tax on the car itself.
Electricity is not a ‘fuel’ for fuel benefit purposes. No taxable benefit arises if the employer pays for the electricity used for private journeys in a company car, so the employee gets this tax-free.
Employees can also charge their own electric cars at work tax-free, using charging points provided at or near the workplace. This applies whether the employer is a large business or a close company, and the exemption is not limited to company cars.
Where the employer does not pay for private fuel, it can reimburse company car drivers for business mileage tax-free using HMRC’s advisory fuel rates. From 1 September 2026, these range from 14p to 27p a mile for petrol cars and 15p to 22p for diesel, depending on engine size. For fully electric cars, the advisory electricity rate is 7p a mile for home charging and 15p a mile for public charging. The rates are reviewed quarterly and published on GOV.UK at www.gov.uk/government/publications/advisory-fuel-rates.
Practical Point
Electric cars remain the most tax-efficient company cars by a wide margin, even with the percentage rising each year to 9% by 2029/30. Plug-in hybrids are only worthwhile if their electric range is long. Petrol and diesel cars are expensive company cars for both employees and employers.
