Company car tax 2026/27 works by taking the car's list price (its P11D value), multiplying it by a benefit-in-kind (BiK) percentage set by its CO2 emissions, then charging income tax on the result at your normal rate. For the 2026/27 tax year (6 Apr 2026 to 5 Apr 2027) a fully electric car is taxed at 4%, plug-in hybrids at 4% to 17% depending on electric range and CO2, and most petrol and diesel cars at 25% to 37%. Employers report the benefit to HMRC, and from April 2027 they'll have to put company car benefits through payroll.
If you're being offered a company car or a salary sacrifice car, the sections below show how to work out what you'd actually pay. If you're buying an ex-company or ex-fleet car, skip to the part on checking one before you buy.
How company car tax is worked out
A company car counts as a taxable benefit if it's available for your private use, and HMRC treats ordinary commuting as private use.
The calculation uses three numbers:
- The P11D value: the car's list price when new, including VAT, delivery and any factory-fitted options, but not the first-year vehicle tax or the registration fee.
- The appropriate percentage (the BiK rate): set by the car's official CO2 figure and, for plug-in hybrids, its electric range.
- Your marginal income tax rate: 20%, 40% or 45% in England, Wales and Northern Ireland (Scotland has its own bands).
P11D value × BiK rate gives the taxable benefit. Taxable benefit × your tax rate gives the yearly tax.
The list price is what counts, not what the employer paid. A big fleet discount doesn't lower your tax, but options you add do. If you tick boxes for bigger wheels or a panoramic roof, you'll pay tax on them every year you have the car.
Company car tax 2026/27 rates
The rates below are HMRC's appropriate percentages for 2026/27, taken from the company car benefit appropriate percentage tables on GOV.UK. Rates for cars up to 74g/km went up by 1 percentage point from 2025/26; rates from 75g/km upwards stayed the same.
Electric and plug-in hybrid cars
- 0g/km (fully electric): 4%
- 1 to 50g/km with 130 miles or more electric range: 4%
- 1 to 50g/km with 70 to 129 miles: 7%
- 1 to 50g/km with 40 to 69 miles: 10%
- 1 to 50g/km with 30 to 39 miles: 14%
- 1 to 50g/km with under 30 miles: 16%
- 51 to 54g/km: 17%
The electric range bands are the reason two plug-in hybrids at similar prices can be taxed very differently. One with a 25-mile range sits at 16%, while one with an 80-mile range sits at 7%, so on a £45,000 car the first costs a basic-rate taxpayer £1,440 a year and the second £630.
There's a temporary easement for some newer plug-in hybrids. Cars first registered from 1 Jan 2025 under the newest emissions standard can show a higher official CO2 figure, which would push them into a worse band. HMRC's PHEV easement treats qualifying cars as if they emitted 1g/km until 5 Apr 2028, with protection for existing arrangements until 5 Apr 2031 at the latest. If you're choosing a new PHEV, ask your employer or fleet provider which figure they're using for your car.
Petrol and diesel cars
From 55g/km the rate climbs by 1 percentage point for every 5g/km. A car at 55 to 59g/km is 18%, 100 to 104g/km is 26%, 130 to 134g/km is 32%, and anything at 155g/km or above hits the maximum of 37%.
Diesels get a 4 percentage point supplement unless they meet the RDE2 emissions standard (Euro 6d). The supplement can't take a car past 37%, according to HMRC's Employment Income Manual. The manufacturer or fleet provider can confirm whether a diesel is RDE2-compliant, so ask before you pick one from a fleet list.
A worked example
Say you're offered a £40,000 electric car:
- £40,000 × 4% = £1,600 taxable benefit.
- A basic-rate (20%) taxpayer pays £320 a year, about £27 a month.
- A higher-rate (40%) taxpayer pays £640 a year, about £53 a month.
Now compare a £35,000 petrol car at 135g/km. That's 33%, so the taxable benefit is £11,550. A basic-rate taxpayer pays £2,310 a year and a higher-rate taxpayer £4,620.
Where rates are heading
The government has already set future rates. Fully electric cars go to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30, according to the 2028 to 2030 rates policy paper. From 2028/29 the plug-in hybrid range bands are replaced by a single 18% rate for 1 to 50g/km. If you're signing a 3 or 4 year agreement, run the numbers at the later rates too.
Free fuel and charging
If your employer pays for fuel you use privately, a separate car fuel benefit charge applies. For 2026/27 the fuel benefit multiplier is £29,200, up from £28,200. You multiply it by the car's BiK percentage, then by your tax rate.
On a petrol car at 33%, that's a £9,636 benefit, or £1,927 a year for a basic-rate taxpayer and £3,854 for a higher-rate one. You'd need to drive a lot of private miles for free fuel to come out ahead. The usual alternative is to pay for all your own fuel and have your employer reimburse business miles at HMRC's advisory fuel rates. You avoid the charge entirely if you pay back the full cost of private fuel by the deadline your employer sets.
Electricity is treated differently. Charging a company car at a workplace charger doesn't create a fuel benefit charge, and the fuel benefit doesn't apply to fully electric cars.
How salary sacrifice cars are taxed
With salary sacrifice, you give up part of your gross salary and your employer provides a car in return, often with insurance, servicing and tyres included. Because the sacrifice comes off your pay before income tax and National Insurance, the car costs you less than the same monthly payment would from your take-home pay.
BiK still applies to the car. The saving comes from paying for it out of gross salary, and the BiK charge is the part people tend to forget when comparing quotes.
Salary sacrifice is covered by the Optional Remuneration Arrangements (OpRA) rules. For most benefits, OpRA means you're taxed on whichever is higher: the normal BiK value or the salary you gave up. HMRC confirms that OpRA doesn't apply to cars with CO2 emissions of 75g/km or less. Electric cars (0g/km) and plug-in hybrids under that line are taxed on the normal BiK value only.
For a petrol or diesel car over 75g/km, you'd be taxed on the higher of the BiK value and the salary sacrificed, which removes most of the advantage.
A few things to check before signing:
- Your cash pay can't drop below the National Minimum Wage, so employers cap how much you can sacrifice.
- A lower salary can affect statutory pay (maternity, paternity, sick pay), some state benefits and possibly your pension contributions, depending on how your employer sets it up. GOV.UK's salary sacrifice guidance lists the knock-on effects.
- Ask what happens if you leave the job or go on long-term leave. Early termination charges vary a lot between schemes.
The expensive car supplement and vehicle tax
Vehicle Excise Duty (VED) is separate from BiK. On a company or salary sacrifice car the leasing company or employer usually pays it and builds the cost into the rental.
Cars with a list price over £40,000 pay an expensive car supplement of £440 a year on top of the standard rate, for 5 years starting from the second time the car is taxed. The vehicle tax rate tables set the threshold at £40,000 for petrol, diesel and hybrid cars.
For electric cars the threshold is now £50,000. The change applies to zero-emission cars first registered on or after 1 Apr 2025, for tax taking effect from 1 Apr 2026, according to HMRC's policy paper on the higher threshold. EVs registered before 1 Apr 2025 don't pay the supplement at all. Petrol and diesel cars stay at £40,000. You can read more about bands in our guide to vehicle tax bands.
How employers and drivers stay compliant
Most of the paperwork falls on the employer, but mistakes still end up in your tax code.
- Check the P11D value your employer has recorded, including any options you chose.
- Check the CO2 figure. It's on the V5C logbook, and because bands are 5g/km wide, a 1g/km error can move the car up a band.
- For a plug-in hybrid, check the electric range figure the employer is using.
- If you have a fuel card, keep a record that separates business and private mileage. Home to your normal workplace counts as private.
At the moment many employers report benefits on a P11D form after the tax year ends, which HMRC then turns into a tax code adjustment. From April 2027, company car, van, fuel and medical benefits must be reported and taxed through payroll in real time, so you'll see the deduction on each payslip. Other benefits follow in April 2028.
Buying an ex-company or ex-fleet car
A lot of 3 to 4 year old cars on the used market come out of company fleets and salary sacrifice schemes. They're often well serviced and have one registered keeper, but the history can be harder to read than a privately owned car's.
Who actually owns it
During the agreement, a company car or salary sacrifice car normally belongs to a leasing or finance company, and the driver has no right to sell it. If a private seller offers you a nearly new car and the V5C shows a lease company as keeper, ask questions. Selling a car you don't own is a known scam, and our guide to car buying scams covers the warning signs.
Ex-fleet cars sold through dealers or auctions have normally had the agreement settled first, but a finance check is the only way to see whether anything is still recorded against the car. On CheckVehicle, outstanding finance is included in the Total Check (£9.95); the Quick Check (£6.49) covers stolen and write-off records.
Mileage and MOT history
Fleet cars often cover high mileage, and a car leased for 3 years may have had no MOT at all until it left the fleet. That means fewer odometer readings to compare. Look at the MOT history once it exists, and line up the service records against the mileage. Our guide to the MOT history check explains what the readings can and can't tell you.
Tax costs that come with the car
The expensive car supplement follows the car, not the owner. If a 2023 petrol SUV had a list price of £42,000 when new, you'll pay the extra £440 a year until the 5 years run out, even if you're buying it for £22,000. Ask for the original list price, or check the vehicle tax rate when you get a quote.
Before you pay
- Run the registration through a free car check to see the MOT history and DVLA details, and confirm the make, model and colour match.
- Compare the V5C details with the car: VIN, engine size, colour and keeper history.
- Run a finance check if the car looks like ex-lease or ex-company.
- Ask for the service history and any fleet maintenance records.
- Check how much vehicle tax the car will cost you, including any expensive car supplement.
Our list of paperwork you should receive when buying a car covers what to get on the day.
Frequently asked questions
How much is company car tax on an electric car in 2026/27?
The BiK rate is 4% of the car's list price. On a £40,000 car that's a £1,600 taxable benefit, so a basic-rate taxpayer pays £320 a year and a higher-rate taxpayer £640. The rate rises to 5% in 2027/28.
Is a salary sacrifice electric car worth it?
It often works out cheaper than leasing privately because you pay from gross salary and the BiK on an EV is low. Higher-rate taxpayers usually save the most. Compare the full cost, including the BiK tax, and check the early termination terms and the effect on your pension and statutory pay.
Do I pay the expensive car supplement on a company car?
Usually not directly. The leasing company or employer pays the vehicle tax and builds it into the rental. The supplement applies to petrol and diesel cars over £40,000 and, from April 2026, to electric cars registered from 1 Apr 2025 with a list price over £50,000.
Is it safe to buy an ex-fleet car?
Many are well maintained, but check who owns it, whether finance is still recorded, and whether the mileage matches the service records. A car sold privately by someone who only had it on a lease or salary sacrifice agreement is a red flag.
