Last updated: 18 October 2026
Electric company cars are still one of the most tax-efficient benefits an employer can offer, but they are no longer tax-free. For the 2026/27 tax year, a fully electric company car is taxed at 4% of its list price, and that percentage is set to rise each year until 2029/30. Here is how electric car tax works for employees, directors and their companies from April 2026.
How Electric Cars Get Taxed
A company car is a taxable benefit in kind only if it is available for private use. Commuting counts as private use. The taxable amount (the “cash equivalent”) is the car’s list price, plus any accessories, multiplied by the appropriate percentage for the car.
- Capital contributions: if the employee pays towards the cost of the car, up to £5,000 of that contribution is deducted from the list price.
- Part-year availability: if the car is only available for part of the tax year, the benefit is reduced proportionately.
- Private use payments: amounts the employee is required to pay for private use reduce the benefit too.
The employee pays income tax on the cash equivalent at their marginal rate, usually through their tax code. The employer pays Class 1A National Insurance on the same figure at 15% for 2026/27.
Let’s Work Out the Appropriate Percentage
The appropriate percentage depends on the car’s CO2 emissions and, for plug-in hybrids, its electric-only range. For a zero-emission car, the percentages are:
| Tax year | Fully electric (0g/km CO2) |
| 2025/26 | 3% |
| 2026/27 | 4% |
| 2027/28 | 5% |
| 2028/29 | 7% |
| 2029/30 | 9% |
Even at 9%, an electric car will still be taxed far more lightly than a petrol or diesel car, where the percentage can reach 37%.
Let’s Learn By Some Examples
Jaz has a fully electric company car with a list price of £30,000 and uses it privately throughout 2026/27.
- Taxable benefit: 4% of £30,000 = £1,200.
- If Jaz is a basic rate taxpayer, he pays £240 in tax for the year (20% of £1,200).
- If Jaz is a higher rate taxpayer, he pays £480 (40% of £1,200).
- His employer pays Class 1A National Insurance of £180 (15% of £1,200).
A petrol car with the same list price and CO2 emissions of 130g/km would carry a 32% appropriate percentage, a taxable benefit of £9,600 and a tax bill of £1,920 for a basic rate taxpayer.
Let’s Consider Low-Emission Cars into Account
If a fully electric car is not right for you, a plug-in hybrid with a long electric range can still be tax-efficient. Cars emitting between 1 and 50g/km of CO2 are taxed according to how far they can travel on electric power alone.
Appropriate percentage for 2026/27 for cars with CO2 emissions of 1-50g/km
| Electric range | Appropriate percentage 2026/27 |
| 130 miles or more | 4% |
| 70 to 129 miles | 7% |
| 40 to 69 miles | 10% |
| 30 to 39 miles | 14% |
| Less than 30 miles | 16% |
The longer the electric range, the lower the tax. Cars emitting 51 to 54g/km start at 17%, and the percentage climbs by 1% for each 5g/km band up to a maximum of 37%.
Other Electric Car Costs and Reliefs for 2026/27
- Vehicle tax (VED): electric cars have paid vehicle tax since 1 April 2025. A new electric car pays £10 in its first year and then the standard rate of £200 a year from 1 April 2026. Electric cars registered from 1 April 2025 with a list price over £50,000 also pay the £440 expensive car supplement for five years from the second year of tax.
- Pay-per-mile charge from 2028: the government plans to introduce Electric Vehicle Excise Duty (eVED) from April 2028, charging 3p a mile for fully electric cars and 1.5p a mile for plug-in hybrids on top of vehicle tax.
- Capital allowances: companies and businesses can claim a 100% first-year allowance on new, unused zero-emission cars bought before 1 April 2027 (6 April 2027 for income tax).
- Charging: electricity is not a fuel for car fuel benefit purposes, so there is no fuel benefit charge when the employer pays for charging. If employees pay for electricity used on business journeys, HMRC’s advisory electricity rates from 1 September 2026 are 7p a mile for home charging and 15p a mile for public charging.
Electric cars remain a sensible choice for directors and employees, but the rising percentages and the new pay-per-mile charge mean it is worth running the numbers before you commit to a long lease. Still unsure how this applies to you? Book a quick call with one of our accountants and we will work through the figures with you.
