Company Car Tax

For many business owners and employees, a company car remains an attractive benefit. However, the tax implications can vary significantly depending on the type of vehicle you choose. With Benefit-in-Kind (BIK) tax rates continuing to favour low-emission vehicles, electric cars remain one of the most tax-efficient options available in the UK.

What Is Company Car Tax?

If your employer provides you with a car that is available for private use, HMRC treats this as a taxable benefit. This is known as a Benefit in Kind (BIK).

The amount of tax you pay depends on:

• The vehicle’s P11D value (list price).
• The vehicle’s CO₂ emissions.
• Your personal income tax rate.

The cleaner the vehicle, the lower the BIK percentage and therefore the lower the tax bill.

Why Electric Cars Receive Tax Advantages

The Government has used favourable BIK rates to encourage the adoption of electric vehicles (EVs). As a result, fully electric company cars attract significantly lower tax charges than petrol or diesel alternatives.

For the 2026/27 tax year, the BIK rate for a fully electric company car is 4%, compared with rates that can reach 37% for higher-emission petrol and diesel vehicles.

Example: Electric vs Petrol Company Car

Let’s compare two cars with a P11D value of £40,000.

Electric Car

• P11D Value: £40,000
• BIK Rate: 4%
• Taxable Benefit: £1,600

Tax payable:

• Basic Rate Taxpayer (20%): £320 per year
• Higher Rate Taxpayer (40%): £640 per year

Petrol Car

Assuming a BIK rate of 30%:

• P11D Value: £40,000
• Taxable Benefit: £12,000

Tax payable:

• Basic Rate Taxpayer (20%): £2,400 per year
• Higher Rate Taxpayer (40%): £4,800 per year

The savings offered by an electric vehicle can amount to thousands of pounds annually.

Additional Tax Benefits for Business Owners

Choosing an electric vehicle through your limited company can offer more than just lower BIK tax.

Corporation Tax Relief

Businesses can generally claim tax relief on qualifying electric vehicles purchased by the company, reducing overall corporation tax liabilities.

Lower Employer National Insurance

Employers pay Class 1A National Insurance on the BIK value. Because the taxable benefit for electric vehicles is much lower, the employer’s NIC bill is also significantly reduced.

Charging Benefits

Unlike company-paid fuel for petrol and diesel vehicles, electricity is not treated in the same way for company car fuel benefit purposes. Employer-funded charging can therefore be far more tax efficient.

Looking Ahead

Although electric vehicle BIK rates are scheduled to increase gradually over the coming years, they remain substantially lower than those for traditional combustion-engine vehicles. Current plans see rates increase incrementally from 4% in 2026/27 to 9% by 2029/30, still offering considerable tax savings.

Is an Electric Company Car Right for You?

For directors, business owners and employees who are considering a company vehicle, electric cars continue to offer compelling advantages:

✅ Significantly lower BIK tax
✅ Potential corporation tax savings
✅ Reduced employer National Insurance costs
✅ Lower running and maintenance expenses
✅ Environmental benefits and lower emissions

While the right choice depends on your circumstances, an electric company car is often one of the most tax-efficient benefits a business can provide.

If you’re considering a company car and would like advice on the tax implications for your business, contact AIM GB LTD. We can help you compare the costs and determine the most tax-efficient option for both you and your company.