A company car can look expensive on the price list and still be remarkably cheap to run through work, or appear affordable and turn out to carry a sizeable tax bill. The difference is Benefit-in-Kind tax. For new car buyers using a company car scheme in the UK, the monthly lease cost is only part of the picture. The car’s taxable value, CO2 emissions, fuel type and your income tax position can change which model makes the most financial sense.
For the 2026/27 tax year, the system still strongly favours low-emission vehicles, especially fully electric cars. Understanding the calculation before choosing a model can prevent a tempting upgrade from becoming an unexpectedly expensive benefit.
How Company Car Tax Works
If an employer provides a car that is available for private use, it is normally treated as a taxable benefit. HMRC calculates a cash value for that benefit, commonly called benefit in kind car tax, or BIK.
The starting point is usually the car’s list price for tax purposes, often called its P11D value. This is not necessarily the discounted price your employer or leasing company pays. The figure is multiplied by the car’s appropriate BIK percentage, which is mainly determined by CO2 emissions and fuel type. You then pay income tax on the resulting taxable benefit.
BIK Rates for 2026/27
From 6 April 2026 to 5 April 2027, a zero-emission company car has a 4% appropriate percentage. That remains far below the rates applied to many petrol and diesel cars.
Plug-in hybrids emitting between 1g/km and 50g/km are rated according to their official electric range. In 2026/27, the percentage ranges from 4% for qualifying cars with at least 130 miles of zero-emission range to 16% for models with less than 30 miles. Cars emitting 51g/km or more move through progressively higher bands, with the maximum reaching 37%.
A petrol or hybrid car at 130g/km, for example, falls into a 32% band for 2026/27. That gap between 4% and 32% explains why two similarly priced cars can produce very different tax bills.
A Simple Company Car Tax Example
Imagine two cars, each with a £40,000 taxable list value. One is fully electric and the other is a petrol car rated at 130g/km CO2.
The electric car uses the 4% rate, creating a taxable benefit of £1,600 for the year. A taxpayer paying income tax at 20% would pay £320 in company car tax, while someone taxed at 40% would pay £640, before individual circumstances are considered.
The petrol car at 32% creates a taxable benefit of £12,800. At 20% income tax, that is £2,560 for the year; at 40%, it is £5,120. This is why the cheapest company car scheme UK quote is not always the cheapest choice after tax.
Why the P11D Value Matters
Private buyers tend to focus on discounts and monthly payments. Company car drivers need to watch the taxable list value. A heavily discounted premium model may still carry a high P11D value, so the fleet provider’s saving does not automatically reduce your personal tax charge.
Taxable accessories can also increase the calculation. Before adding costly wheels, upgraded trim or other options, ask your employer or provider for the confirmed P11D value and projected BIK.
Electric Cars Still Have a Major Tax Advantage
Electric company cars are no longer completely tax-free, but the 4% BIK rate in 2026/27 keeps them highly competitive. A more expensive EV can therefore cost less in company car tax than a cheaper combustion model.
Tax is only one part of ownership, though. Check real-world range, home or workplace charging and the scheme’s insurance arrangements. Electric cars have also been subject to Vehicle Excise Duty since April 2025, so not every motoring tax disappears.
What About Plug-In Hybrids?
Plug-in hybrids can work well for drivers who regularly charge and whose journeys fit the electric range. The tax system rewards qualifying models with lower emissions and longer official zero-emission capability.
Check the exact derivative before ordering. Different wheels, trims or powertrains can affect emissions and electric range, which may change the BIK percentage.
Diesel Cars and the Supplement
Some diesel company cars can attract a 4 percentage point supplement, subject to the overall 37% cap. Diesels certified to the relevant Euro 6d standard are exempt. Drivers considering diesel for high motorway mileage should confirm the exact classification rather than assuming every modern diesel is treated the same.
Company Fuel Can Create a Separate Tax Charge
If your employer pays for private fuel, a separate fuel benefit charge can arise. For 2026/27, company car fuel benefit uses a fixed multiplier of £29,200, multiplied by the same appropriate percentage used for the car. The resulting benefit is then taxed at your applicable income tax rate.
Employer-paid private petrol or diesel can therefore be expensive for some drivers. Compare the tax cost with paying for your own private fuel. Electric charging arrangements can be treated differently in some circumstances, so check the scheme details with payroll or a tax adviser.
Questions to Ask Before Ordering
Ask for the confirmed P11D value, the 2026/27 BIK percentage and an estimate of your monthly tax cost. Check whether the scheme includes insurance, maintenance, tyres, fuel or charging, and whether any employee contribution affects the taxable benefit. If the car is offered through salary sacrifice, also ask how leaving your employer or ending the agreement early would affect you.
It can also help to compare new car running costs, electric car charging costs and leasing versus buying before committing to a multi-year arrangement.
Frequently Asked Questions
What is the BIK rate for an electric company car in 2026/27?
The appropriate percentage for a zero-emission company car is 4%. Your actual tax bill depends on the car’s taxable value and your income tax position.
Does a company car discount reduce my BIK tax?
Usually not in the way a private buyer might expect. Company car tax is generally based on the relevant list price for tax purposes rather than the discounted fleet or lease price.
Are plug-in hybrids cheaper for company car tax?
They can be, particularly when official CO2 emissions are 1g/km to 50g/km and the car has a long zero-emission range. Check the exact BIK rate for the specific model.
Is a company car always cheaper than buying privately?
No. The answer depends on tax, employer contributions, insurance, maintenance, mileage, fuel or charging, and what you would otherwise spend privately. Compare the complete annual cost rather than one monthly figure.
Choose the Car by After-Tax Cost
The smartest company car choice is rarely the model with the lowest list price or headline lease payment. In 2026/27, emissions can change the tax calculation far more dramatically than a modest price difference. Compare the P11D value, BIK percentage and estimated personal tax side by side, then add the practical costs that matter to your driving. That makes it much easier to see which new car genuinely offers the best value through your employer.