If your employer provides a car you can also use for private journeys, HMRC treats that car as part of your pay. Company car tax is the Income Tax charged on that benefit, and in 2026/27 the amount depends on the car’s list price, its CO2 emissions and, for plug-in hybrids, its electric-only range. An electric car attracts a benefit in kind rate of just 4%, while the most polluting cars are taxed at 37%. Figures are current for 2026/27.
What Is Company Car Tax?
Company car tax is the Income Tax an employee pays when their employer makes a car available for private use, including commuting. HMRC calls this a benefit in kind: a non-cash perk taxed as if it were extra salary, even though no money changes hands.
The tax applies whether the car comes from a large employer or your own limited company — directors are covered by the same rules. Our guide to director’s loan account rules explains another common way directors take value from their company. No tax is due if the car is used only for business journeys and is not available for private use, such as a pool car kept at the business premises overnight.
How the Tax Is Calculated
The calculation has three steps:
- Find the car’s P11D value — its list price including VAT, delivery and factory-fitted extras. The first-year registration fee and vehicle excise duty are excluded.
- Find the appropriate percentage — the benefit in kind rate for the car’s CO2 emissions (and electric range for plug-in hybrids).
- Multiply the P11D value by the appropriate percentage. The result is the taxable benefit, taxed at your marginal Income Tax rate — 20%, 40% or 45%.
Example: an electric car with a P11D value of £45,000. In 2026/27 the rate for a zero-emission car is 4%, giving a taxable benefit of £1,800 a year — £360 a year for a basic-rate taxpayer and £720 for a higher-rate taxpayer. A petrol car with the same list price at 120 g/km is taxed at 30% — a £13,500 benefit, or £5,400 a year for a higher-rate taxpayer.
Company Car Tax Rates for 2026/27
The appropriate percentages for 2026/27 are:
| CO2 emissions (g/km) | Electric-only range | 2026/27 rate |
|---|---|---|
| 0 (fully electric) | Not applicable | 4% |
| 1–50 | 130 miles or more | 4% |
| 1–50 | 70–129 miles | 7% |
| 1–50 | 40–69 miles | 10% |
| 1–50 | 30–39 miles | 14% |
| 1–50 | Under 30 miles | 16% |
| 51–54 | Not applicable | 17% |
| 75–79 | Not applicable | 21% |
| 95–99 | Not applicable | 25% |
| 120–124 | Not applicable | 30% |
| 150–154 | Not applicable | 36% |
| 155 and above | Not applicable | 37% |
Diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standard pay a 4 percentage point supplement on top of these rates, capped at 37%. Most modern diesels are RDE2-compliant.
Electric Company Cars: The Rates Are Rising
Electric cars still attract by far the lowest benefit in kind rates, but the rates are rising: 4% in 2026/27, 5% in 2027/28, 7% in 2028/29, 9% in 2029/30 and 10% in 2030/31. Plug-in hybrids face a bigger change: from April 2028 the range-based bands disappear and every plug-in hybrid in the 1–50 g/km band is taxed at a single rate of 18%, rising to 19% in 2029/30 and 20% in 2030/31.
The Car Fuel Benefit Charge
If your employer also pays for fuel for your private journeys, a second benefit in kind applies: the car’s appropriate percentage multiplied by a fixed multiplier — £29,200 for 2026/27, rising to £30,200 from April 2027. Example: the petrol car above at 30% gives a fuel benefit of £8,760 a year (30% × £29,200) — £1,752 a year in tax for a basic-rate taxpayer and £3,504 for a higher-rate taxpayer. Electricity for charging an electric company car carries no fuel benefit charge.
Vans and the Flat-Rate Benefit Charge
Vans use a flat annual charge instead of a percentage of list price. For 2026/27 the van benefit charge is £4,170 a year, and the van fuel benefit charge is £798 if the employer pays for private fuel. Both are nil for a zero-emission van, and ordinary commuting does not count as private use for a van.
What the Employer Pays: Class 1A National Insurance
The employee is not the only one who pays: the employer pays Class 1A National Insurance at 15% on the cash value of the benefit — the same rate as Employer National Insurance on salaries. On the £1,800 electric-car benefit above, the employer pays £270 a year; on the £13,500 petrol-car benefit, it pays £2,025.
Reporting the Benefit: P11D and Payrolling from April 2027
For 2026/27, most employers still report company cars on form P11D after the year ends — due by 6 July 2027, with Class 1A payable by 22 July 2027 (19 July by cheque). From 6 April 2027, company cars, car fuel, vans, van fuel and medical benefits must be reported through payroll in real time, taxed each pay period through PAYE. Employers should check their payroll setup can handle payrolled benefits before April 2027. Our guide to PAYE and payroll basics explains how PAYE reporting works, and this comparison of payroll software for small businesses covers tools that handle P11D and payrolled benefits.
How to Reduce Your Company Car Tax Bill
- Choose a low-CO2 car. An electric car or a plug-in hybrid with a long electric range attracts the lowest rates.
- Check the P11D value before you order. Optional extras are included in the list price, so they raise the tax every year.
- Pay for your own private fuel. The fuel benefit charge often costs more in tax than the fuel is worth.
- If you are self-employed, different rules apply. Sole traders claim business travel through the sole trader mileage allowance — 55p per mile for the first 10,000 business miles, then 25p.
Frequently Asked Questions
How much is company car tax on an electric car in 2026/27?
The rate for a zero-emission car is 4% of its P11D value — on a £45,000 electric car, a £1,800 benefit a year: £360 for a basic-rate taxpayer and £720 for a higher-rate taxpayer.
Do I pay tax on a company car if I only use it for work?
No, provided the car is genuinely not available for private use, including commuting — for example, a pool car kept at the business premises overnight.
Is free fuel from my employer worth it?
Often not. The fuel benefit is your car’s rate multiplied by £29,200 in 2026/27 — on a petrol car at 30%, an £8,760 benefit, or £1,752 a year in tax for a basic-rate taxpayer.
What is the diesel supplement?
Diesel cars that do not meet the RDE2 standard pay 4 points on top of the normal rate, capped at 37%. RDE2-compliant diesels are exempt.
If you are weighing up a company car, or setting cars up for staff, we can help you work out the real cost. See our services or contact us — email info@financialaccountingfirm.co.uk.
This article is general information, not personal tax or financial advice. Rates are current for 2026/27 and may change; check the latest HMRC guidance before making a decision.
