How Company Car Tax Bands Work and What You Will Pay

In the UK, most company cars (and vans) used for private purposes fall under benefit-in-kind taxation. The value is calculated using the vehicle’s list price, while the applicable percentage is determined through tax bands for company cars, which are based on CO₂ emissions and the type of fuel used. 

In practice, HMRC publishes percentage bands for each tax year – you multiply the car’s list price by the relevant percentage to get the taxable benefit. Low-emission vehicles attract much lower percentages, while high-emission cars top out at 37%. The taxable value is further reduced if the employee pays anything towards the cost, uses the car only part-time, or has a car has low CO₂ emissions.

How Compay Car Tax Bands Are Calculated

Benefit calculation

The BIK rate is a percentage of the car’s original list price (including VAT and options). HMRC sets the percentage in the CO₂ band. For example, a petrol/diesel car emitting 145 g/km might be taxed at 35% of its list price, whereas a new electric car is taxed at only a few percent.

Emission bands:

Cars are grouped by CO₂ emissions (g/km) and, for hybrids/plug-ins, by their electric-only range. Each band has a set percentage. Lower bands (cleaner cars) pay less tax. The table below summarises the 2025/26 and 2026/27 company car tax rates. (From April 6, 2026 new rates apply.)

CO₂ emissions (g/km) & electric range	2025/26 rate (%)	2026/27 rate (%)
Zero emission (fully electric)	3 %	4 %
1–50 (≥130 mile EV 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 (<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 (all higher bands)	21 %–37 %	21 %–37 %

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

Why Electric Cars Have the Lowest Tax Rates

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

For the 2025/26 tax year, the rate is 3%. This increases slightly to 4% in 2026/27.

Plug-in hybrids with a long electric range (130+ miles) follow the same pattern. This makes them a strong option for reducing overall tax liability.

Also Read: VAT on Car Hire in the UK – What Businesses Need to Know

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

Other plug-in hybrids are also seeing small increases. Each band rises by 1 percentage point depending on electric range.

For example:

• 70–129 miles range → slight increase
• 40–69 miles range → slight increase
• Below 30 miles range → higher tax compared to longer-range models

Cars with moderate emissions (51–74 g/km) also move up by 1%.

• A car emitting 65–69 g/km increases from 19% to 20%

Higher emissions continue to push vehicles into more expensive brackets.

When These Changes Came Into Effect

The updated rates apply from:

• April 2025 (2025/26 tax year)
• April 2026 (2026/27 tax year)

These changes form part of a gradual shift rather than a sudden increase.

What to Expect in the Coming Years

Tax rates for electric vehicles will rise slowly over time.

Planned increases include:

• 6% in 2027/28
• 8% in 2028/29
• 9% in 2029/30

Even with these changes, electric cars will remain the most tax-efficient option.

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The Highest Tax Rates for Petrol and Diesel Cars

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

• The maximum rate remains at 37%
• This applies once emissions go above 160 g/km

In simple terms, the higher the emissions, the higher the tax.

How it works

The employee’s taxable benefit is calculated by:

1. This is the car’s list price, which includes any accessories and VAT.
2. Applying the appropriate percentage from the table above.
3. Multiplying by the employee’s income tax rate (e.g., 20% or 40%) to find the tax due.

Example: A £30,000 car with 0 g/km CO₂ (electric) has a 3% BIK in 2025/26. The taxable benefit is 3% of £30,000 = £900. A 20% taxpayer would pay £180 in tax (20% of £900).

Special cases:

• If you pay something towards the car’s cost (e.g., contribute to the lease or petrol), such payment reduces the taxable value.
• Part-time availability (less than 15 hours/week) also reduces the taxable benefit.
• Employer-provided fuel for private use is a separate charge: free petrol/diesel triggers a fuel benefit (using a fixed multiplier × BIK%). For 2026/27 the fuel multiplier is £29,200 (up from £28,200). Electric charging at home is treated differently and generally has no fuel benefit charge if no fuel is given.

Staying up to date:

HMRC guidance is updated each year. For example, HMRC’s table (Appendix 2) was updated in April 2026 to include the new 4% EV rate. Always check the latest GOV.UK guidance or use HMRC’s online calculator to estimate your specific tax.

Read: 5 VAT Strategies For Car Garages To Use In 2026

Key Points on Low-Emission Vehicles

• Electric cars (0 g/km) enjoy very low tax. From April 2026, their BIK rate is 4%, up from 3% previously. The charge is based on list price, not fuel costs.
• Plug-in hybrids are taxed by their declared CO₂ and electric range. A PHEV with a 100 miles range might pay 10–14%, whereas the same model with only 30 miles would pay 14–16%. The ranges and rates are in the table above.
• Future changes: The government has signalled that EVBIK will rise by 2% each year until 2029. This was confirmed in the 2024 Autumn Budget. Consequently, the BIK rates for even very clean cars will gradually increase – though they will remain much lower than for fossil-fuel cars.

How We Help Businesses Manage Tax on Company Cars

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

• Tax planning for company cars: Advice on choosing cars, salary sacrifice schemes, and calculating company car BIK to minimise tax costs.
• Payroll and Benefits administration: Managing P11D returns, payroll adjustments and ensuring the correct reporting of car benefits.
• Company tax and VAT advice: Ensuring employer expenses and deductions (leasing, maintenance) are handled correctly.
• Employee benefits consulting: Structuring car and fuel benefits packages that meet business needs and compliance requirements.

Whether you’re an employer arranging a fleet or an employee reviewing your company car deal, our experts can clarify the rules and optimise your tax position.

Get Free Consultation

Call Anytime 0203 883 4777

Get Free Consultation

FAQs About Tax on Company Cars

When do car tax rates change? 

Company car BIK rates update every tax year (6 April). Recent uprating occurred in April 2025 and April 2026. The rates are normally set in Budget or tax announcements and then published by HMRC.

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

HMRC gives tables in terms of grams per km under the WLTP (new) or NEDC (old) test cycles. Use the official CO₂ figure from the manufacturer’s spec. (When in doubt, HMRC’s calculator or your payroll department will use the correct value.)

What about tax on fuel costs? 

If your employer pays for your private fuel, a separate fuel benefit charge applies. The car fuel multiplier is £29,200 for 2026/27. Electric charge at home generally isn’t taxed as fuel.

Can I reduce my car tax? 

Yes. Paying a contribution toward the car’s value or insurance reduces the taxable benefit. Taking a cheaper car or an older car (with a lower list price) also lowers the overall tax.

Where can I find official information about tax on cars and other vehicles?

All rates and rules are published on GOV.UK. See HMRC’s Company car Benefit— appropriate percentage tables for each year and HMRC guides on company car tax.