Key Takeaways
- The benefit in kind (BIK) rate for fully electric company cars is 4% in 2026/27, up from 3% in 2025/26 and rising to 5% in 2027/28.
- A 40% taxpayer driving a £40,000 electric company car pays £640 a year, or around £53 a month, in income tax on the car benefit.
- Most plug-in hybrid vehicles fall into the 8% to 16% BIK bands in 2026/27 because they offer fewer than 70 miles of electric range.
- From 2028/29, plug-in hybrid BIK rates rise to 18% and electric-range bands are removed entirely, widening the gap between electric and hybrid company cars.
What benefit in kind is and why it matters
When your employer provides you with a company car that you can also use privately, HMRC treats that private use as a taxable benefit. The value of that benefit is added to your income for the year, and you pay income tax on it. This is what “benefit in kind” means. The abbreviation BIK is widely used, but the full term is benefit in kind.
The amount of taxable benefit you receive is not based on what the car actually costs to lease or run. It is based on two things: the P11D value of the car and the BIK percentage that applies to it. The P11D value is the official list price of the car, including VAT, delivery charges, and first-year registration fees, but excluding the first registration fee and vehicle excise duty. The BIK percentage is set by HMRC and varies by CO₂ emissions and, for electric and plug-in hybrid vehicles, electric range. The reason this matters is straightforward. A company car with a high BIK rate can cost you a significant amount in additional income tax each year, sometimes more than you might expect when you first agree to take the car. Choosing a car with a lower BIK rate, particularly a fully electric vehicle, can reduce that cost considerably.
The 2026/27 BIK rate table
Here is a summary of the key BIK rates that apply in the 2026/27 tax year.
Fully electric vehicles (0g/km CO₂)
The BIK rate for fully electric cars is 4% in 2026/27. This is up from 3% in 2025/26 and will rise to 5% in 2027/28. It is no longer the 2% rate that applied in earlier years. That lower rate has now been phased out.
Plug-in hybrids and ultra-low emission cars (1 to 50g/km CO₂)
For plug-in hybrid vehicles (PHEVs) and other cars emitting between 1 and 50g/km of CO₂, the BIK rate in 2026/27 depends on the car’s electric-only range:
| Electric range | BIK rate 2026/27 |
| 130 miles or more | 4% |
| 70 to 129 miles | 5% |
| 40 to 69 miles | 8% |
| 30 to 39 miles | 12% |
| Under 30 miles | 16% |
Most current PHEVs on the market offer fewer than 70 miles of electric range, which means most will fall into the 8% to 16% bands. A PHEV with a range under 30 miles is taxed at 16%, which is four times the rate of a fully electric car.
Petrol and diesel vehicles (51g/km CO₂ and above)
For conventional petrol and diesel cars, BIK rates rise with CO₂ emissions, starting at around 17% for cars in the 51 to 75g/km band and climbing to a maximum of 37%. Diesel cars that do not meet RDE2 real-world emissions standards attract an additional 4% supplement on top of their standard BIK rate, subject to the 37% cap.
How BIK is calculated: a worked example
The formula is straightforward.
Step one: Multiply the car’s P11D value by the applicable BIK percentage. This gives you the taxable benefit.
Step two: Multiply the taxable benefit by your marginal income tax rate. This gives you the annual tax you owe on the company car.
Step three: Divide by 12 to get your monthly cost.
UK income tax bands for 2026 are:
- Basic rate: 20% on taxable income between £12,570 and £50,270
- Higher rate: 40% on taxable income between £50,271 and £125,140
- Additional rate: 45% on taxable income above £125,140
Worked example: fully electric car
P11D value: £40,000 BIK rate: 4% Taxable benefit: £40,000 x 4% = £1,600
Annual tax for a 40% taxpayer: £1,600 x 40% = £640 Monthly cost: £640 ÷ 12 = £53.33
Annual tax for a 20% taxpayer: £1,600 x 20% = £320 Monthly cost: £320 ÷ 12 = £26.67
For comparison, if the same £40,000 car were a petrol model emitting 120g/km of CO₂, the BIK rate would be around 29%. The taxable benefit would be £11,600, and a 40% taxpayer would pay £4,640 a year in income tax on the car benefit, or around £387 a month. That is a difference of more than £330 a month compared to the electric equivalent.
One additional point on expensive cars: If your electric car has a list price above £40,000 and was registered after April 2025, it will also attract an expensive car supplement of £390 a year for five years. This is a separate vehicle excise duty charge, not a BIK charge, but it is worth factoring into your total cost of ownership.
A note on these figures. The worked examples above are illustrative, based on HMRC benefit in kind rates for the 2026/27 tax year and correct as at July 2026. Rates are set by government and change in future Budgets, and your actual tax depends on the car’s P11D value, your marginal tax rate and your circumstances. This is general information, not tax advice. For a figure specific to you, use HMRC’s company car tax calculator or speak to a qualified accountant.
Why electric company cars are still the most tax-efficient option
With a 4% BIK rate in 2026/27, fully electric vehicles remain significantly cheaper to run as company cars than any other fuel type. Petrol and diesel cars sit between 17% and 37%. Most PHEVs fall between 8% and 16%. Even the top-range PHEV band of 4% (for cars with 130 or more miles of electric range) matches the EV rate, but very few PHEVs currently achieve that range.
For fleet managers and employees choosing a company car, the tax saving from selecting an electric vehicle is material. CLMS, which operates as AFL Fleet Management and manages around 9,000 active contracts across 12,000 corporate and fleet customers, has seen a significant proportion of those customers move to electric specifically to control their BIK liability.
The advantage is set to narrow over the coming years, but it does not disappear. EV BIK rates rise to 5% in 2027/28, then 7% in 2028/29, and 9% in 2029/30. PHEV rates, however, are set to jump sharply. From 2028/29, PHEVs will no longer be assessed on electric range at all. Their BIK rate will rise to 18% in 2028/29 and 19% in 2029/30. That removes the electric-range incentive entirely for plug-in hybrids and makes the gap between PHEVs and pure electric vehicles wider again from 2028 onwards, not narrower. For anyone currently driving or considering a PHEV as a company car, this is a significant change to plan around.
Salary sacrifice and BIK: how the two work together
A salary sacrifice car scheme lets you give up a portion of your gross salary in exchange for a company car provided by your employer. Because the sacrifice comes out of your pay before income tax and National Insurance are calculated, you pay less tax and National Insurance on your earnings. The car is then subject to BIK in the normal way.
For electric cars in 2026/27, the BIK rate under salary sacrifice is the same 4% that applies to any other company car arrangement. The salary sacrifice does not change the BIK rate. What it does is reduce your taxable income at the same time, so you benefit on two fronts: lower income tax and National Insurance on your salary, and a low BIK rate on the car.
Your employer also benefits. When you sacrifice salary, your employer pays less employer National Insurance on your earnings. Many employers pass some or all of that saving back to employees, which can make the net cost of the car through salary sacrifice lower than leasing the same car personally.
There is one rule to be aware of for higher-emission vehicles. For cars emitting more than 75g/km of CO₂, the taxable benefit under salary sacrifice is calculated as the higher of the BIK value or the gross amount of salary sacrificed. For electric cars, this rule does not apply in the same way, which is another reason why EVs are the most efficient choice for salary sacrifice. You can read more about how these schemes work on our salary sacrifice car scheme page.
What changes after 2027/28
The planned BIK rate increases for electric vehicles are already legislated. Here is the schedule:
| Tax year | EV BIK rate | PHEV BIK rate (typical) |
| 2025/26 | 3% | 5% to 14% (range-based) |
| 2026/27 | 4% | 4% to 16% (range-based) |
| 2027/28 | 5% | 5% to 17% (range-based) |
| 2028/29 | 7% | 18% (range no longer relevant) |
| 2029/30 | 9% | 19% (range no longer relevant) |
The key takeaway from this table is that the EV advantage does not disappear, it just becomes less pronounced. At 9% in 2029/30, an EV is still taxed at less than half the rate of a typical petrol or diesel car. And from 2028/29, PHEVs lose their electric-range benefit entirely, making them considerably less attractive as company cars than they are today.
If you are signing a three or four-year company car agreement now, it is worth modelling the BIK cost across the full contract term, not just the first year.
How to work out your own BIK figure
You need three pieces of information.
One: the P11D value of the car. Your employer or leasing provider should supply this. It is the list price of the car including VAT and delivery, but excluding the first registration fee and vehicle excise duty.
Two: the BIK percentage for that car. Use the HMRC P11D lookup tool or refer to the rate table above. For electric cars in 2026/27, the rate is 4%. For PHEVs, check the electric range and match it to the table.
Three: your marginal income tax rate. If your total income is below £50,270, you are a basic rate (20%) taxpayer. Between £50,271 and £125,140, you are a higher rate (40%) taxpayer. Above £125,140, the additional rate of 45% applies.
Once you have those three numbers: P11D value x BIK% = taxable benefit. Taxable benefit x your tax rate = annual tax. Divide by 12 for the monthly figure. If you want a precise calculation that accounts for your specific car, salary, and contract structure, the most reliable approach is to ask a specialist. Our team at CLMS works through these figures with fleet customers and individuals every day. Explore your options on our electric car leasing or business car leasing pages, or get in touch directly for a personalised quote.
Frequently asked questions
The BIK rate for fully electric vehicles in the 2026/27 tax year is 4%. This applies to all pure electric cars regardless of range. The rate was 3% in 2025/26 and will rise to 5% in 2027/28.
You multiply the car’s P11D value by the applicable BIK percentage to get the taxable benefit. You then multiply the taxable benefit by your marginal income tax rate (20%, 40%, or 45%) to get your annual tax liability. Divide by 12 for the monthly amount.
Yes, in 2026/27 PHEV BIK rates still depend on electric range, running from 4% for cars with 130 or more miles of range down to 16% for cars with fewer than 30 miles. However, from 2028/29 this range-based system is removed and PHEVs will be taxed at 18%, regardless of their electric range.
For electric cars, salary sacrifice combines a 4% BIK rate with income tax and National Insurance savings on the sacrificed salary, making it more tax-efficient overall than a standard company car arrangement for most employees. The BIK rate itself is the same either way; the additional saving comes from the pre-tax salary reduction.
Yes. Diesel cars that do not meet RDE2 real-world emissions standards attract an additional 4% BIK supplement on top of their standard rate, subject to a total cap of 37%. RDE2-compliant diesel cars are not subject to the supplement.What happens to company car tax rates after 2027/28? EV BIK rates rise to 7% in 2028/29 and 9% in 2029/30. PHEV rates jump to 18% in 2028/29 and 19% in 2029/30, and from that point are no longer based on electric range. Petrol and diesel rates remain on their existing CO₂-based scale.
Get a personalised quote
If you are choosing a company car for 2026/27 and want to understand exactly what you will pay in BIK, the most useful next step is a quote that reflects your specific car, salary, and contract requirements. CLMS manages around 9,000 active contracts for corporate and fleet customers across the UK, many of whom have moved to electric specifically to manage their BIK liability.
To get a personalised salary sacrifice or business lease quote, contact the CLMS team directly. You can also explore current electric and business car options on our electric car leasing and business car leasing pages.
