Choosing a company car is not the same calculation as choosing a car with your own money. A model that looks expensive in the showroom can be surprisingly cheap to run through an employer, while a lower-priced petrol car can create a much larger tax bill. The reason is benefit-in-kind tax, which links the taxable value of a company car to its official list price, CO2 emissions and, for some plug-in hybrids, electric-only range.
For anyone comparing vehicles through a company car scheme UK employers offer, the monthly lease figure is only part of the story. The smarter comparison is the taxable benefit each car creates at your own income-tax rate.
How company car tax works
A company car available for private use is normally treated as a taxable benefit. HMRC calculates the car benefit by applying an “appropriate percentage” to the car’s taxable list-price value, including qualifying accessories. That percentage depends mainly on CO2 emissions and fuel type.
The calculation is straightforward:
- Taxable car benefit = car list-price value × BIK percentage.
- Your annual tax cost = taxable car benefit × your marginal income-tax rate.
This is why the price your employer or leasing company negotiated is not the number you should focus on. Company car tax is generally based on the car’s list-price value for tax purposes rather than a discounted transaction price.
BIK rates 2026: what changes the bill?
For the 2026/27 tax year, zero-emission cars have a 4% company-car appropriate percentage. That keeps fully electric cars at a substantial tax advantage compared with most petrol and diesel models, even though the percentage has risen from earlier years.
Cars emitting 1 to 50g/km are not all taxed at one rate. For these low-emission vehicles, including many plug-in hybrids, the percentage also depends on how far the car can travel with zero tailpipe emissions. In 2026/27, the relevant rates run from 4% for the longest qualifying electric range up to 16% for cars with an electric range of less than 30 miles.
Once emissions rise above 50g/km, the percentage climbs with the CO2 figure and can reach the 37% maximum. Some diesel cars that do not meet the relevant Euro 6d standard can also face a 4-percentage-point diesel supplement, subject to the same overall cap.
A practical comparison
Imagine you are choosing between two cars with the same £40,000 tax list-price value. Car A is fully electric, so its 2026/27 BIK percentage is 4%. Its taxable benefit is £1,600 a year. A 20% taxpayer would therefore pay about £320 a year in income tax on the car benefit, while a 40% taxpayer would pay about £640.
Car B is a petrol model emitting 130g/km. The 2026/27 percentage for 130 to 134g/km is 32%, producing a taxable benefit of £12,800. At a 20% tax rate, that is about £2,560 a year; at 40%, it is about £5,120. The cars have the same list price, but the personal tax cost is radically different.
That gap is why buyers should compare electric car buying costs and company-car taxation together, not retail price alone.
Why list price matters more than many drivers expect
Benefit in kind car tax can produce counter-intuitive choices. Options that increase the taxable list-price value can raise the benefit even when they do nothing to emissions. A higher-spec version may therefore cost more each month in tax.
Before ordering, ask your employer for the tax-relevant list price, official CO2 figure and, for a qualifying plug-in hybrid, its approved zero-emission mileage. Those are the figures that let you compare cars properly.
For broader ownership budgeting, it also helps to compare new car running costs such as insurance, charging or fuel, servicing and any employee contribution required by the scheme.
Plug-in hybrids need a closer look
Plug-in hybrids can sit between electric and conventional cars for company-car tax, but the detail matters. A low CO2 number alone does not tell you the full BIK rate when the car emits between 1 and 50g/km. HMRC also uses the approved zero-emission mileage band.
That means two plug-in hybrids with similar prices and CO2 emissions can have different tax percentages because one has a longer electric range. If you are comparing PHEVs, check the actual HMRC band rather than assuming every plug-in hybrid receives the same treatment.
Questions to ask before joining a company car scheme
Tax is important, but it should sit alongside the practical terms of the scheme. Before signing an order, check:
- What is the car’s tax list-price value including factory-fitted options?
- What is its official CO2 figure and current BIK percentage?
- If it is a plug-in hybrid, what zero-emission mileage figure is used?
- Is there an employee contribution or salary-sacrifice deduction?
- Does the employer provide private fuel, and could that create a separate fuel benefit?
- What happens if you leave the employer or change role before the agreement ends?
Also check how to compare new cars on equipment, range and everyday suitability. The lowest-tax car is not the best choice if it does not work for your commute, family or charging access.
Private fuel can create a second tax charge
If your employer pays for fuel used privately and you do not fully reimburse the private-use cost under the applicable rules, a separate fuel benefit charge can arise. This is different from the company-car benefit itself and can materially change the economics of the package.
Drivers sometimes focus so heavily on the car’s BIK percentage that they overlook this second charge. Ask the fleet or payroll team exactly what private fuel or electricity is covered and how it is treated for tax before assuming it is “free”.
FAQ
What is company car tax based on in the UK?
It is mainly based on the car’s tax list-price value and an HMRC appropriate percentage linked to CO2 emissions. For cars emitting 1 to 50g/km, zero-emission mileage can also affect the percentage.
What is the electric company car BIK rate for 2026/27?
The appropriate percentage for a zero-emission company car is 4% for the 2026/27 tax year.
Does a company discount reduce my company car tax?
Usually not directly. The calculation is generally based on the car’s tax list-price value, including relevant accessories, rather than the discounted price negotiated by an employer or leasing provider.
Are plug-in hybrids always cheap for company car tax?
Not necessarily. Their BIK percentage depends on both CO2 emissions and, for cars in the 1 to 50g/km band, approved electric-only range. A PHEV with a short electric range can be taxed at a noticeably higher percentage than one with a longer range.
Choose the car by after-tax cost, not badge price
For company-car drivers, the most useful number is not simply the monthly lease or showroom price. It is the after-tax cost of having that specific car available for private use. A few percentage points of BIK can outweigh a modest difference in vehicle price, particularly for higher-rate taxpayers.
Shortlist the cars that genuinely suit your needs, then compare their tax list-price values, emissions figures and 2026/27 BIK percentages side by side. That simple exercise can reveal which new car actually makes the most financial sense through your employer.