Company Car Tax in 2026, What BIK Means and Why Electric Changes Everything
What Is BIK?
Benefit in Kind tax applies when your employer, including your own limited company, provides you with a company car available for personal use. You pay income tax on a percentage of the car's list price (its P11D value) each year.
The percentage depends on the car's CO2 emissions. The lower the emissions, the lower the BIK rate, and the less tax you pay.
The Current Rates
For the 2026 to 2027 tax year, the BIK rate for a fully electric vehicle is 4 per cent. For a petrol car emitting 120g per km of CO2, the rate is around 27 per cent. For a diesel emitting 150g per km, it could be 33 per cent.
These rates apply to the car's P11D value, which is the list price including factory options and VAT but excluding the first registration fee.
What This Means in Real Money
A £40,000 electric car. BIK at 4 per cent gives a taxable benefit of £1,600. A 40 per cent taxpayer pays £640 per year, around £53 per month.
A comparable petrol car at 27 per cent BIK gives a taxable benefit of £10,800. The same 40 per cent taxpayer pays £4,320 per year, around £360 per month. The difference is £307 per month in personal tax, before considering company tax relief.
What Rates Are Going to Do
Electric vehicle BIK rates are rising gradually. The current rate of 4 per cent will increase to 5 per cent in 2027 to 2028, then to 7 per cent in 2028 to 2029, reaching 9 per cent by 2029 to 2030.
Even at 9 per cent, the maximum petrol rate will be 39 per cent. The electric advantage remains significant for the rest of the decade. Acting now locks in the lowest rates available.
How the Company Benefits
A company purchasing a new electric vehicle outright can claim 100 per cent first-year allowance, offsetting the full purchase price against corporation tax in year one. A £40,000 electric car saves £10,000 in corporation tax at the 25 per cent rate.
A petrol car enters the special rate pool at a 6 per cent writing down allowance, meaning the tax relief is spread over many years. The upfront corporation tax benefit of electric is substantial.
Finance Options for Company Vehicles
Most companies acquire vehicles through hire purchase, finance lease, or contract hire rather than outright purchase. Each has different tax treatment.
HP and finance lease allow the company to claim capital allowances. Contract hire monthly rentals are deducted as a business expense. A business vehicle finance broker can explain which structure suits your tax position.
Thinking about adding a vehicle to your fleet? Talk to us about the finance options.