Last updated: 14 October 2026
How will the company car tax increases from April affect employees?
From 6 April 2026, benefit in kind percentages for company cars went up by 1 percentage point for every band below the 37% maximum, taking electric cars to 4%. Electric car rates then rise to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. Most petrol and diesel cars are already at or near the 37% maximum. Employees pay income tax on the benefit at their marginal rate, while employers pay Class 1A NIC at 15%. Van and fuel benefit charges also rose with inflation from April 2026.
Company car BiK rates for electric and low-emission cars
| CO2 (g/km) | Electric range | 2025/26 | 2026/27 | 2027/28 |
| 0 | n/a | 3% | 4% | 5% |
| 1 to 50 | 130 miles or more | 3% | 4% | 5% |
| 1 to 50 | 70 to 129 miles | 6% | 7% | 8% |
| 1 to 50 | 40 to 69 miles | 9% | 10% | 11% |
| 1 to 50 | 30 to 39 miles | 13% | 14% | 15% |
| 1 to 50 | under 30 miles | 15% | 16% | 17% |
Higher CO2 bands rise to a maximum of 37%. Diesels not meeting RDE2 add 4%, up to 37%.
What it costs employees in 2026/27
| Car list price | BiK % | Taxable benefit | Tax at 20% | Tax at 40% |
| £40,000 electric | 4% | £1,600 | £320 | £640 |
| £40,000 plug-in hybrid (45 mile range) | 10% | £4,000 | £800 | £1,600 |
| £40,000 petrol (170g/km or more) | 37% | £14,800 | £2,960 | £5,920 |
Hybrid changes from 2028
From 6 April 2028, the separate electric-range bands for cars emitting 1 to 50g/km will be replaced by a single rate of 18%, rising to 19% in 2029/30. That means a plug-in hybrid with a long electric range will cost much more in tax than it does now, so check the rate for every year you expect to keep a car you order today.
Example
Jo, a 40% taxpayer, has a £50,000 electric company car. In 2025/26 her benefit was £1,500 and tax £600. In 2026/27 it’s £2,000 and tax £800, rising to £1,000 in 2027/28. Her employer pays Class 1A of £300 in 2026/27. A similar petrol car would cost her over £6,000 a year in tax.
Salary sacrifice
Electric cars through salary sacrifice remain tax-efficient, as the BiK rate is low and the sacrifice reduces income tax and NIC on salary. The optional remuneration rules don’t apply to cars with CO2 of 75g/km or less.
Vans and fuel
- Van benefit charge rises each April with inflation
- Zero-emission vans have no van benefit
- Fuel benefit for cars uses a multiplier of £29,200 in 2026/27
Common mistakes
- Not checking the rate when ordering a car with a long lead time
- Ignoring the fuel benefit when the employer pays private fuel
- Forgetting to update the P11D or payrolled benefits when a car is changed
- Assuming hybrid rates will stay at current levels after April 2028
Frequently asked questions
Are car rates locked in when I order?
No, the rate applies for each tax year.
Do pool cars have a benefit?
No, if genuinely pool cars.
Is home charging taxable?
Employer-provided charging at work is exempt.
Is BiK payrolled?
Optionally now; compulsory from April 2027.
Related: driving instructors and car benefit, providing a van to a worker and cycle to work.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with company car benefits. See our payroll services service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
