In short: UK company car tax (Benefit-in-Kind, or BIK) is charged as a percentage of the car's list price, not a flat annual figure — and that percentage is rising for electric cars over the next few years while staying steep for petrol and diesel. Vehicle Excise Duty (VED) also carries an "expensive car" supplement for pricier EVs registered from April 2025. None of this changes overnight, but it's worth factoring into a 2026 car finance decision if a company car is on the table.
How company car tax actually works
Unlike vans (which use a flat annual Benefit-in-Kind charge regardless of the vehicle's value), company cars are taxed as a percentage of the car's list price (P11D value), with the percentage set by CO2 emissions and, for hybrids, electric range. You then pay income tax on that percentage at your usual rate (20%, 40% or 45%).
What the percentage bands look like
| Vehicle type | 2025/26 BIK rate | 2026/27 BIK rate |
|---|---|---|
| Pure electric (0g/km CO2) | 3% | 4% |
| Petrol/diesel, 51-75g/km CO2 | ~17%, rising with emissions | |
| Petrol/diesel, highest-emission bands | Up to 37% (plus a 4% diesel supplement if not RDE2-compliant) | |
| Plug-in hybrid, 130+ mile electric range | 4% (2026/27) | |
| Plug-in hybrid, under 30 mile electric range | 16% (2026/27) | |
The electric car rate is scheduled to keep rising — from 3% in 2025/26 to 4% in 2026/27 and 5% in 2027/28 — but it remains far lower than any petrol or diesel band, which is why EVs are still the cheapest option for a company car by a wide margin.
Vehicle Excise Duty: the "expensive car" supplement
Separately from BIK, electric cars priced above £40,000 and registered from April 2025 face an additional VED supplement of £390 a year for five years, on top of the standard rate. This closed a gap where EVs had been exempt from the supplement that petrol/diesel cars over that price already paid.
How this affects a buy vs finance vs lease decision
- If you're comparing a company car against financing one privately, the BIK percentage (not a flat fee) means the car's list price matters as much as the vehicle type — a cheaper EV can cost noticeably less in BIK than a pricier one.
- The gap between EV and petrol/diesel BIK rates is currently wide (3-4% vs up to 37%), which is the single biggest company-car-tax factor most buyers overlook.
- A separate 40% first-year capital allowance for leased vehicles that took effect in 2026 currently applies to leased vans, not cars — don't assume it carries over if you're comparing a car lease.
- None of these changes affect the interest rate or APR you're offered on car finance itself — they sit alongside your finance costs, not inside them.
Model your monthly cost either way
Compare a standard HP purchase against a balloon/lease-style structure using our HP calculator.