How company car tax works
If your employer lets you use a company car privately, HMRC treats it as a benefit in kind (BIK) and taxes you on its value. The taxable value is a percentage of the car's list price, set by its CO2 emissions, and for plug-in hybrids its electric-only range. You then pay income tax on that value at your highest rate, usually collected through your tax code.
Company car tax = taxable benefit × your tax rate (20%, 40% or 45%)
Your employer also pays Class 1A National Insurance of 15% on the taxable benefit. You don't pay National Insurance on a company car yourself.
BIK rates for 2026/27
These rates apply from 6 April 2026 to 5 April 2027. CO2 is rounded down to the nearest 5 g/km, so a car at 128 g/km uses the 125 band.
| CO2 (g/km) | Electric range | BIK rate |
|---|---|---|
| 0 (electric) | – | 4% |
| 1 to 50 | 130 miles or more | 4% |
| 1 to 50 | 70 to 129 miles | 7% |
| 1 to 50 | 40 to 69 miles | 10% |
| 1 to 50 | 30 to 39 miles | 14% |
| 1 to 50 | Under 30 miles | 16% |
| 51 to 54 | – | 17% |
| 55 to 59 / 60 to 64 / 65 to 69 | – | 18% / 19% / 20% |
| 70 to 79 | – | 21% |
| 80 to 84 | – | 22% |
| Each extra 5 g/km | – | +1% |
| 150 to 154 | – | 36% |
| 155 and above | – | 37% |
Diesel cars that don't meet the RDE2 standard pay a 4% supplement, up to the 37% maximum. Electric cars went up from 3% in 2025/26 to 4% in 2026/27, and every band up to 74 g/km rose by one point.
Worked examples
Electric car with a £45,000 list price
- Taxable benefit: £45,000 × 4% = £1,800
- Basic rate taxpayer: £1,800 × 20% = £360 a year, or £30 a month
- Higher rate taxpayer: £1,800 × 40% = £720 a year, or £60 a month
- Employer's Class 1A NI: £1,800 × 15% = £270
Petrol car, £30,000, 128 g/km
- 128 g/km rounds down to 125, which is 31%
- Taxable benefit: £30,000 × 31% = £9,300
- Tax at 20%: £1,860 a year (£155 a month). At 40% it's £3,720.
The same car as a non-RDE2 diesel would be 35%, a benefit of £10,500 and £2,100 a year at 20%. A plug-in hybrid with a 45-mile electric range at £50,000 is 10%, so £5,000 of benefit and £2,000 a year at 40%.
Things that reduce company car tax
- Capital contributions: if you paid towards the car, up to £5,000 comes off the list price.
- Paying for private use: money you pay your employer as a condition of private use comes straight off the taxable benefit.
- Part-year cars: if you only have the car for part of the tax year, the benefit is reduced in proportion. Enter the number of months under "More options".
Free fuel for private journeys is taxed separately through the car fuel benefit charge, which can easily cost more than the car itself for a petrol or diesel. It isn't included here, and electricity isn't treated as fuel for this charge.
Is a company car worth it?
Electric company cars are hard to beat at 4%. A £45,000 EV costs a basic rate taxpayer £30 a month in tax, far less than leasing one privately. High-emission petrol and diesel cars are another matter: at 37%, a £40,000 car costs a higher rate taxpayer £5,920 a year. If you'd rather take a cash allowance and use your own car, check what you could claim back with the mileage allowance calculator, see the effect on your pay with the take-home pay calculator, and work out the road tax with the car tax calculator.
Frequently asked questions
What is the BIK rate for electric cars in 2026/27?
Fully electric company cars are taxed at 4% of the list price in 2026/27, up from 3% in 2025/26. On a £40,000 car that's a benefit of £1,600, or £320 a year for a basic rate taxpayer.
How much is company car tax on a £40,000 car?
It depends on emissions. An electric car at 4% costs £320 a year at 20% or £640 at 40%. A petrol car at 125 g/km is 31%, which is £2,480 at 20% or £4,960 at 40%.
What is the highest BIK rate?
The maximum is 37%, which applies to cars with CO2 of 155 g/km or more, or 135 g/km or more for diesels that pay the 4% supplement.
Do employers pay National Insurance on company cars?
Yes. Employers pay Class 1A National Insurance of 15% on the taxable benefit. Employees don't pay National Insurance on it.
How are plug-in hybrids taxed?
Hybrids with CO2 of 1 to 50 g/km are taxed on their electric-only range. In 2026/27 that's 4% for 130 miles or more, 7% for 70 to 129, 10% for 40 to 69, 14% for 30 to 39 and 16% below 30 miles.
Last reviewed October 2026 using 2026/27 figures. This calculator gives an estimate for guidance only.