How Does Company Car Tax Work for Electric Vehicles?

If your employer gives you an electric car you can use privately, you pay company car tax, also called Benefit-in-Kind (BiK) tax. The amount is your car’s P11D value multiplied by an appropriate percentage set by HMRC, multiplied by your income tax rate. For the 2026/27 tax year, the appropriate percentage for a pure-electric car is just 4%, compared with 25% or more for most petrol cars, which is why electric company cars are so much cheaper to run than petrol equivalents. The sections below explain exactly what each part of that sum means and, crucially, how the tax actually reaches your pay packet.

What is company car tax (Benefit-in-Kind)?

A company car available for private use is a taxable perk. HMRC calls it a “benefit in kind” because it is a non-cash benefit you receive in addition to your salary, and income tax is due on it just as it would be on wages.

Private use is defined broadly. Driving to work from home counts as private use, as do evenings, weekends and holidays. The charge applies whenever the car is available for private use, not only when you actually drive it outside work hours.

Electric vehicles are taxed on exactly the same formula as petrol and diesel cars. They simply sit at a far lower appropriate percentage, which is why the annual tax bill is so much smaller.

The three numbers that decide your tax

Company car tax comes down to three inputs. Get these right and the calculation is straightforward.

1. P11D value, the manufacturer’s list price of the car, including VAT, delivery charges and any factory-fitted options. This is not what your employer paid after negotiating a fleet discount. It is the full published list price at first registration.

2. Appropriate percentage (BiK rate), a percentage set by HMRC each tax year, based on the car’s CO2 emissions and fuel type. For a pure-electric, zero-emission car in 2026/27, the appropriate percentage is 4% (figures vary, verify current data).

3. Your income tax rate, 20% if you are a basic-rate taxpayer, 40% if you are a higher-rate taxpayer, or 45% if you pay the additional rate.

Company car tax = P11D value x appropriate percentage x your income tax rate.

That is the complete formula. Every figure on your tax code adjustment traces back to those three numbers.

What counts in the P11D value

The P11D value is not the price on the dealer’s invoice. It is the car’s manufacturer list price and typically includes:

• The published list price (including VAT)
• Delivery charges from the manufacturer
• Any factory-fitted options added before delivery

It does not include:

• Dealer or fleet discounts agreed after the list price
• The first registration fee
• Vehicle excise duty (VED/road tax)

If your employer secured a £5,000 fleet discount on a £45,000 car, the P11D value is still £45,000. Your tax does not fall because your employer negotiated well.

Worked example: an electric company car at 20% and 40%

The table below uses a £45,000 P11D value and the 2026/27 appropriate percentage of 4% for a pure-electric car (figures vary, verify current data).

Step	Calculation	Result
P11D value	(list price)	£45,000
Appropriate percentage (2026/27 EV)	£45,000 x 4%	£1,800 taxable benefit
Tax, basic rate (20%)	£1,800 x 20%	£360 per year (£30/month)
Tax, higher rate (40%)	£1,800 x 40%	£720 per year (£60/month)

To put that in context, a petrol car at the same £45,000 P11D value but with a 30% appropriate percentage (illustrative, not a specific model’s rate) produces a taxable benefit of £13,500. A 40% taxpayer would pay £5,400 a year in company car tax on that petrol car, compared with £720 on the electric equivalent. That is a saving of £4,680 per year, or £390 per month.

Current electric car BiK rates (and where they go next)

The appropriate percentage for a pure-electric car is 3% in the 2025/26 tax year and rises to 4% in 2026/27 (figures vary, verify current data). Rates are confirmed to climb gradually each year; for the year-by-year breakdown through to 2029/30, see the full electric car benefit-in-kind rates schedule.

Even as the percentage rises, electric cars remain far below the 25% to 37% band where most petrol and diesel cars sit. The advantage is meaningful across the whole company car lease term, which is why modelling the cost over three or four years matters more than looking at year one alone.

How is the tax actually paid? (the part most guides skip)

This is the section most competitor guides leave out, but it answers the question most employees actually have: do I get a bill?

You (the employee): You do not receive a separate bill from HMRC. Instead, HMRC adjusts your PAYE tax code to account for the taxable benefit. That adjustment reduces your tax-free personal allowance, which means more tax is deducted from your monthly salary automatically. If you are given a new car or return a car mid-year, your code is updated accordingly. You will see the change reflected in your payslip, but there is no invoice.

Your employer: Your employer has reporting and payment obligations alongside yours. They must:

• File a P11D form for each employee who receives a company car benefit, setting out the car’s P11D value and the taxable benefit for that tax year. The P11D is due by 6 July following the end of the tax year.
• Submit a P11D(b) summarising the total Class 1A National Insurance owed across all employees.
• Notify HMRC of any mid-year car changes using a P46(car) form.
• Pay Class 1A National Insurance on the same taxable benefit. The Class 1A rate is 15% for 2025/26 (figures vary, verify current data), due by 22 July (or 19 July if paying by post).

On the £45,000 worked example above, the employer’s Class 1A charge for 2026/27 would be £1,800 x 15% = £270 (figures vary, verify current data). That is a cost to the business, but far lower than it would be on a petrol equivalent with a £13,500 taxable benefit.

Common mistakes to avoid

• Confusing list price with purchase price. Your BiK charge is based on the manufacturer’s P11D value, not the discounted price your employer paid. A fleet deal that saves £4,000 on purchase does not reduce your monthly tax.

• Thinking you escape the charge by not using the car much. Availability for private use triggers the BiK charge, not actual usage. If the car is at your house and you could drive it privately, the charge applies.

• Forgetting rates rise each year. The appropriate percentage increases annually through to 2029/30. If your lease runs three years, model the cost in year two and three, not just year one. The advantage over petrol remains large, but the precise saving changes each April.

• Confusing company car tax with road tax (VED). These are separate taxes. Electric cars became subject to vehicle excise duty from 1 April 2025. VED is paid by your employer as registered keeper and is not part of the BiK calculation.

In summary

Electric car company car tax is low because the appropriate percentage is low, not because the formula is different. The same three-step calculation applies to every car, and the tax is collected quietly through your PAYE tax code rather than as a separate bill. What matters in practice is knowing your car’s P11D value, checking the current appropriate percentage for your tax year, and understanding that rates rise gradually each year to 2029/30.

For the full year-by-year rate schedule and to see how the percentages compare across different CO2 bands, the electric car benefit-in-kind rates article has the complete breakdown.

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