Company car tax explained (2026/27)

How the benefit is calculated

• Start with the P11D value: list price including VAT and factory options, plus delivery, less the first registration fee and VED.
• Deduct capital contributions you made (up to £5,000) and any amount you pay for private use.
• Multiply by the appropriate percentage for the car.
• Pay tax at your marginal rate (20%, 40% or 45%, or Scottish rates). Your employer pays Class 1A NI at 15%.

Appropriate percentages 2025/26 to 2029/30

From 55g/km the percentage rises 1 point per 5g/km. In 2026/27 a petrol car at 120-124g/km is 31%, and 150g/km or more hits the 37% cap. Diesels that do not meet RDE2 pay a 4% supplement, still capped at the maximum.

Worked examples (2026/27)

The same electric car in 2029/30 at 9% would give a £4,050 benefit, or £1,620 a year for a higher-rate taxpayer.

• Electric car, P11D £45,000: BIK £45,000 x 4% = £1,800. Tax: £360 (basic rate) or £720 (higher rate). Employer Class 1A NI: £270.
• Plug-in hybrid, P11D £45,000, 45 miles range: £45,000 x 10% = £4,500. Tax: £900 or £1,800.
• Petrol, P11D £35,000, 122g/km: £35,000 x 31% = £10,850. Tax: £2,170 or £4,340.

Fuel benefit charge

If your employer pays for any private fuel, a separate fuel benefit applies: the car's appropriate percentage x £29,200 for 2026/27 (£28,200 in 2025/26). For the 31% petrol car that is £9,052, costing £1,810.40 at 20% or £3,620.80 at 40%. It is all-or-nothing: unless you repay all private fuel by 6 July after the tax year, the full charge applies. Electricity for a fully electric car is not "fuel" for this charge.

Salary sacrifice and reporting

Electric cars via salary sacrifice remain popular because the low BIK applies instead of the salary given up (the optional remuneration rules do not apply to cars at 75g/km or less). Benefits are reported on a P11D or payrolled, and HMRC usually adjusts your tax code to collect the tax during the year.

Company car or cash allowance?

For an electric car, a company car usually beats a cash allowance of the same cost, because the benefit in kind is only 4% of the list price in 2026/27.

A higher-rate taxpayer offered a £6,000 car allowance keeps £3,480 after 40% tax and 2% NI, and still has to buy and run a car. A £45,000 electric company car instead gives a £1,800 benefit and costs £720 a year in tax, with the employer covering lease, insurance and servicing.

With petrol cars the answer is often the other way round. A £35,000 petrol car at 130g/km has an appropriate percentage of 32% in 2026/27. That gives a benefit of £11,200, which costs £4,480 a year at 40%.

Company vans and pool cars

Vans are taxed on a flat benefit, not list price. For 2026/27 the van benefit charge is £4,170, which costs £834 at 20% or £1,668 at 40%. There is no charge if private use is limited to commuting and incidental trips. If the van or its fuel is part of a salary sacrifice arrangement, it must still be reported even when these exemptions would otherwise apply.

A genuine pool vehicle carries no benefit charge. For pool vans GOV.UK sets out the conditions: the van is used by more than one employee, is not ordinarily used by one person to the exclusion of others, is not normally kept at an employee's home, and any private use is merely incidental to business travel, such as driving home before an early start. Pool cars are judged on the same kind of test.

Mileage when you drive a company car

If your employer reimburses business mileage in a company car, it can pay HMRC's advisory fuel rates tax-free. HMRC reviews them quarterly, on 1 March, 1 June, 1 September and 1 December. They vary by fuel and engine size, and fully electric cars have separate rates for home and public charging.

Using your own car for work is different. From 6 April 2026 your employer can pay up to 55p a mile for the first 10,000 business miles (45p before that date) and 25p after that tax-free. If they pay less, you can claim tax relief on the difference.

Reporting changes from April 2027

From 6 April 2027 employers must report company cars, car fuel, vans, van fuel and medical benefits through payroll in real time. Employers will no longer be able to report these benefits after the end of the tax year on a P11D.

For employees this means the tax is deducted from each payslip as the benefit is provided, so a new car or a mid-year change is reflected quickly. Most remaining benefits follow from April 2028. Employer-provided loans and accommodation are excluded from mandatory payrolling at both stages.