How Company Car Tax Bands Work and What You Will Pay in 2026/27

Published by Rida Ahmed posted in Automotive and Transportation, Business, Tax Services, Taxes on 7 September 2026

In the UK, company cars available for private use normally create a benefit-in-kind tax charge. The value is based largely on the vehicle’s list price, while the applicable percentage is determined through company car tax bands based on CO₂ emissions, fuel type and, for some plug-in hybrids, electric-only range.

In practice, HMRC publishes percentage bands for each tax year. You multiply the car’s taxable list price by the relevant percentage to calculate the taxable benefit. Low-emission vehicles attract much lower percentages, while higher-emission cars can reach 37% in 2026/27.

The amount can also be affected by qualifying employee capital contributions, payments specifically required for private use, or periods of at least 30 consecutive days when the car is unavailable. HMRC provides official guidance on calculating company car benefits.

How Company Car Tax Bands Are Calculated

Benefit Calculation

Company car BIK is generally calculated using the car’s original list price, including VAT and taxable accessories, multiplied by the appropriate HMRC percentage.

For example, a petrol car emitting 145 g/km falls into a 35% band in 2026/27, while a fully electric car attracts a much lower 4% rate.

Emission Bands

Cars are grouped by CO₂ emissions measured in grams per kilometre. For cars emitting between 1g/km and 50g/km, electric-only range can also affect the percentage.

The following table summarises the 2026/27 company car tax rates alongside 2025/26:

CO₂ emissions (g/km) & electric range	2025/26 rate (%)	2026/27 rate (%)
Zero emission (fully electric)	3%	4%
1–50 (130+ mile electric range)	3%	4%
1–50 (70–129 mile range)	6%	7%
1–50 (40–69 mile range)	9%	10%
1–50 (30–39 mile range)	13%	14%
1–50 (under 30 mile range)	15%	16%
51–54	16%	17%
55–59	17%	18%
60–64	18%	19%
65–69	19%	20%
70–74	20%	21%
75 and above	21%–37%	21%–37%

Company car BIK rates for 2025/26 and 2026/27 by CO₂ emissions and electric range.

How to Calculate Company Car Tax

To work out the tax on company cars, you generally:

Find the car’s taxable list price, including relevant accessories.
Apply the appropriate BIK percentage.
Multiply the resulting taxable benefit by the employee’s marginal Income Tax rate.

Example: A £30,000 fully electric company car has a 4% BIK rate in 2026/27.

£30,000 × 4% = £1,200 taxable benefit

A 20% taxpayer would therefore pay approximately £240 a year, while a 40% taxpayer would pay approximately £480 a year, assuming the car is available for the full tax year and no other adjustments apply.

You can also use HMRC’s company car and car fuel benefit calculator to calculate the taxable value for a specific vehicle.

Why Electric Cars Have the Lowest Tax Rates

Fully electric cars sit at the lowest end of the company car tax scale.

For 2025/26, the appropriate percentage is 3%. This rises to 4% for 2026/27.

Plug-in hybrids emitting between 1 g/km and 50 g/km with an electric range of at least 130 miles currently receive the same 4% rate in 2026/27.

This continues to make low-emission vehicles significantly more tax-efficient than many petrol and diesel company cars.

If your business is deciding whether to lease or purchase a vehicle, the VAT treatment can also affect the total cost. Our guide to VAT recovery on business cars explains the different rules for leased and purchased vehicles.

How Plug-in Hybrids and Mid-Range Cars Are Changing

Plug-in hybrids are also seeing increases in their appropriate percentages.

For 2026/27:

1–50 g/km with a 70–129 mile electric range is taxed at 7%.
1–50 g/km with a 40–69 mile range is taxed at 10%.
1–50 g/km with less than 30 miles of electric range is taxed at 16%.
Cars emitting 65–69 g/km move from 19% in 2025/26 to 20% in 2026/27.

A plug-in hybrid with an electric-only range of around 100 miles therefore falls into the 7% band for 2026/27.

When These Changes Came Into Effect

The current rates apply from:

6 April 2025 for the 2025/26 tax year
6 April 2026 for the 2026/27 tax year

The changes form part of a gradual increase in company car appropriate percentages.

What to Expect in the Coming Years

Tax rates for zero-emission company cars will continue to rise gradually.

The currently legislated rates are:

5% in 2027/28
7% in 2028/29
9% in 2029/30

The increases remain designed to preserve a significant tax advantage for zero-emission cars compared with conventional petrol and diesel vehicles.

HMRC has published the future company car tax rates for 2028 to 2030.

The Highest Tax Rates for Petrol and Diesel Cars

Petrol and diesel vehicles continue to sit at the upper end of the scale.

For 2026/27:

The maximum appropriate percentage is 37%.
The 37% maximum is reached at 155 g/km and above for standard petrol-powered cars.

In simple terms, higher emissions generally mean a higher taxable company car benefit.

Special Cases

The standard calculation can be adjusted in certain circumstances:

Capital contributions: qualifying employee contributions towards the cost of the car or accessories can reduce the price used in the benefit calculation, up to a maximum deduction of £5,000.
Periods of unavailability: the benefit can be reduced where the car is unavailable to the employee for at least 30 consecutive days.
Payments for private use: qualifying payments that the employee is required to make specifically for private use can reduce the taxable benefit.
Private fuel: employer-funded fuel for private journeys normally creates a separate fuel benefit charge. For 2026/27, the company car fuel benefit multiplier is £29,200.

Electricity is not treated as fuel for the company car fuel benefit charge.

Advisory Fuel Rates From September 2026

HMRC updates advisory fuel rates quarterly. The latest rates took effect on 1 September 2026 and apply when employers reimburse employees for business travel in company cars or when employees repay the cost of private fuel.

The current HMRC advisory fuel rates are:

Vehicle / engine size	Rate per mile
Petrol – 1400cc or less	14p
Petrol – 1401cc to 2000cc	17p
Petrol – over 2000 cc	27p
Diesel – 1600cc or less	15p
Diesel – 1601cc to 2000cc	16p
Diesel – over 2000 cc	22p
Electric – home charging	7p
Electric – public charging	15p

Hybrid cars are treated as petrol or diesel cars for advisory fuel-rate purposes. HMRC also allows employers to continue using the previous rates for up to one month after new rates take effect.

Key Points on Low-Emission Vehicles

Electric cars: Zero-emission cars have a 4% appropriate percentage in 2026/27, compared with 3% in 2025/26.
Plug-in hybrids: Cars emitting 1–50 g/km are taxed according to both CO₂ emissions and electric-only range.
Future changes: The zero-emission rate rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
List price matters: The benefit is calculated from the car’s tax value rather than its current second-hand value.

The relatively low 2026/27 company car tax rates for electric vehicles mean they continue to offer a considerable BIK advantage over many higher-emission alternatives.

How We Help Businesses Manage Tax on Company Cars

At Apex Accountants, we help businesses and employees navigate company car taxation and other taxable benefits. Our services include:

Tax planning for company cars: Advice on vehicle choices, salary sacrifice arrangements and calculating company car BIK.
Payroll and benefits administration: Managing P11D reporting, payroll adjustments and car-benefit reporting through our payroll services.
Company tax and VAT advice: Ensuring leasing, maintenance and other vehicle costs receive the correct tax and VAT treatment.
Employee tax support: Helping individuals understand the personal tax on company cars and how benefits affect their tax position.

Whether you are an employer arranging a fleet or an employee reviewing a company car package, our team can help you calculate the costs and apply the correct HMRC treatment.

Frequently Asked Questions About Tax on Company Cars

How is company car tax calculated in 2026/27?

Company car tax is generally calculated by multiplying the car’s taxable list price by the appropriate HMRC percentage based on its CO₂ emissions, fuel type and, where relevant, electric range. The resulting benefit is then taxed at the employee’s marginal Income Tax rate.

When do company car tax rates change?

Company car BIK percentages normally apply for each tax year beginning on 6 April. The current rates took effect on 6 April 2026. Advisory fuel rates are separate and are reviewed quarterly by HMRC.

How do I know which CO₂ figure to use for my car?

Use the vehicle’s officially approved CO₂ emissions figure. HMRC’s company car guidance and calculator use the relevant WLTP or applicable approved emissions information for the vehicle.

How much tax do you pay on an electric company car?

A fully electric company car has a 4% BIK rate in 2026/27. A £40,000 electric car therefore creates a £1,600 taxable benefit. That equates to approximately £320 a year for a 20% taxpayer or £640 for a 40% taxpayer, assuming full-year availability and no other adjustments.

What about tax on fuel costs?

If an employer provides fuel for private journeys, a separate fuel benefit may arise. The car fuel benefit multiplier is £29,200 for 2026/27. Electricity is not treated as fuel for this particular benefit charge.

What are the advisory fuel rates for electric cars from September 2026?

From 1 September 2026, HMRC’s advisory electricity rates for fully electric company cars are 7p per mile for home charging and 15p per mile for public charging.

Can I reduce my company car tax?

Potentially. Choosing a lower-emission or lower-list-price vehicle can reduce the taxable benefit. Qualifying employee capital contributions of up to £5,000 and payments specifically required for private use can also reduce the benefit in certain circumstances.

Simply paying for insurance does not automatically reduce the company car benefit, and an older car does not necessarily create a lower benefit because the calculation normally starts with its original list price.