Company cars remain one of the most contested benefit decisions for UK employers. Done right, they cost the business less than the equivalent salary, deliver a tax-efficient perk to employees, and — with the right vehicle — advance net-zero commitments. Done wrong, they generate eye-watering Benefit in Kind charges and Class 1A National Insurance.
Electric company cars carry a 3% Benefit-in-Kind rate for 2026/27 (rising 1% per year to 9% by 2029/30) — making them the most tax-efficient way for directors to drive a high-value vehicle. Petrol/diesel cars attract BIK rates of 16-37% based on CO₂ emissions. The company also gets corporation tax relief on the lease payments.
This 2026/27 guide covers BIK rates, salary sacrifice, the new capital allowances regime, and the practical decisions employers face this year.
⚡ 2026/27 Key Numbers at a Glance
- EV BIK rate: 4% (was 3% in 2025/26; rises to 5% in 2027/28)
- Class 1A NI rate on BIK: 15% (increased from 13.8% in April 2025)
- EV 100% First-Year Allowance: confirmed to March/April 2026 — check for extension
- Main pool WDA for 1–50g/km cars: 14% (down from 18%)
- AMAP car rate: 45p/25p — unchanged
How Company Car Tax Works
When an employer provides a car available for private use, HMRC treats it as a Benefit in Kind (BIK). The taxable amount is:
- The employee pays income tax on the BIK value at their marginal rate
- The employer pays Class 1A NI at 15% on the same BIK value (increased from 13.8% in April 2025)
- If private fuel is also provided, a separate fuel benefit charge applies (£28,200 × BIK% in 2026/27)
BIK Rates for 2026/27
Electric vehicles continue to dominate the tax-efficiency league. HMRC has confirmed EV BIK rates through 2029/30:
| Vehicle Type | 2025/26 BIK | 2026/27 BIK | 2027/28 BIK |
|---|---|---|---|
| Fully electric (0g/km CO₂) | 3% | 4% | 5% |
| Hybrid 1–50g/km, 130+ mile EV range | 5% | 6% | 7% |
| Hybrid 1–50g/km, 70–129 mile range | 8% | 9% | 10% |
| Hybrid 1–50g/km, 40–69 mile range | 12% | 13% | 14% |
| Hybrid 1–50g/km, 30–39 mile range | 14% | 15% | 16% |
| Hybrid 1–50g/km, under 30 mile range | 16% | 17% | 18% |
| Petrol/diesel 51g/km+ | Variable; rises by 1% per band — up to 37% maximum | ||
⚠️ Hybrid Cars — Big BIK Jump from 2028/29
From 2028/29, hybrid cars in the 1–50g/km bands jump to a flat 18% BIK, then 19% in 2029/30 — narrowing the gap with conventional vehicles significantly. If you are signing multi-year leases on plug-in hybrids now, model the 2028/29 BIK increase into the total cost. Diesel cars not meeting the RDE2 emissions standard attract a 4% surcharge, capped at 37% total.
Why EV Salary Sacrifice Still Wins
For ultra-low emission vehicles (75g/km or less), HMRC's Optional Remuneration Arrangement (OpRA) rules tax the BIK based on the vehicle's P11D value × BIK percentage — not the salary sacrificed. This preserves the tax efficiency that OpRA otherwise eliminates for higher-emission cars.
🧮 Worked Example — EV vs Petrol, £50,000 P11D Value
- EV (0g/km): £50,000 × 4% = £2,000 BIK. Higher-rate taxpayer pays £800 income tax. Employer pays £300 Class 1A NI.
- Petrol (130g/km, 33% BIK): £50,000 × 33% = £16,500 BIK. Higher-rate taxpayer pays £6,600 income tax. Employer pays £2,475 Class 1A NI.
- EV saving (personal tax only): £5,800 per year for the same effective car price
Employer NI saving on the sacrificed salary further improves the EV economics — though the gap narrows as BIK rates rise through to 2029/30.
Company Car or Personal Car?
We’ll model the most tax-efficient option based on your specific car and usage.
Capital Allowances on Company Cars in 2026/27
Cars are excluded from AIA, Full Expensing, and the new 40% First-Year Allowance. They sit in their own pools:
| Car Type | Capital Allowance Treatment |
|---|---|
| New & unused, 0g/km CO₂ (fully electric) | 100% First-Year Allowance (expires March/April 2026 — check for extension) |
| 1–50g/km CO₂ | Main pool — 14% WDA (down from 18% from April 2026) |
| 51g/km+ CO₂ | Special rate pool — 6% WDA |
⚠️ 100% FYA on New Electric Cars — Check Current Status
The 100% First-Year Allowance on new electric cars was confirmed to 31 March 2026 (companies) / 5 April 2026 (income tax). Companies considering EV fleet purchases should check current HMRC guidance for whether this has been extended — the policy environment is evolving. If it has expired, new EVs fall into the main pool at 14% WDA.
Pool Cars — No BIK if Genuine
A genuine pool car attracts no BIK charge at all. To qualify, all four conditions must be met:
- Available to and used by more than one employee
- Private use is merely incidental to business use — not regular commuting
- Not normally kept overnight at or near an employee's home
- No single employee makes private use of it to any significant extent
⚠️ HMRC Scrutinises Pool Car Claims
Pool car claims are a common HMRC enquiry target. Keep mileage logs, vehicle locations, and booking records to prove all conditions are met. A car parked at a manager's home overnight, even once, can threaten the pool car exemption for the entire year.
The Mileage Alternative — AMAPs
Where employees use their own car for business journeys, employers can pay HMRC's Approved Mileage Allowance Payments tax-free:
| Vehicle Type | First 10,000 Business Miles | Above 10,000 |
|---|---|---|
| Cars and vans | 45p per mile | 25p per mile |
| Motorcycles | 24p per mile | 24p per mile |
| Bicycles | 20p per mile | 20p per mile |
AMAPs cover all running costs — fuel, insurance, maintenance, and depreciation. Pay above the AMAP rate and the excess is taxable employment income. For employees who don't drive enough business miles to make a company car worthwhile, AMAPs are simpler and cleaner than BIK.
Compliance Essentials
📋 Annual Compliance Checklist
- P11D for each director/employee with a car — by 6 July following the tax year end (or payroll the benefit voluntarily through payrolling of benefits — no P11D required)
- Class 1A NI payment — due 22 July (electronic) following the tax year end; 19 July by cheque
- Mileage records — business and private miles; particularly important for pool cars and mixed-use vans
- Notify HMRC of vehicle changes — within 28 days, so the employee's tax code can be updated mid-year
- Fuel benefit charge — declare separately if employer pays for private fuel (£28,200 × BIK% in 2026/27)
✅ Key Takeaways — Company Cars 2026/27
- EVs remain the most tax-efficient company car at 4% BIK in 2026/27 — rising slowly to 9% by 2029/30, still far below petrol/diesel
- EV salary sacrifice schemes are highly effective — particularly for higher-rate taxpaying employees, where the OpRA exemption preserves full tax efficiency
- Hybrid cars in the 1–50g/km range face significant BIK increases from 2028/29 (jumping to 18%) — factor this into multi-year lease decisions now
- Cars don't qualify for AIA, Full Expensing or the 40% FYA — plan capital allowances around the relevant pool rate (14% or 6% WDA)
- Pool car claims need rigorous documentation — HMRC challenges them often; mileage logs and overnight location records are essential
- AMAPs at 45p/25p offer a simple no-BIK alternative for ad-hoc business mileage in personal cars
Frequently Asked Questions
What is the BIK rate for electric cars in 2026/27?
The Benefit in Kind (BIK) rate for fully electric cars (0g/km CO₂) is 4% in 2026/27, rising from 3% in 2025/26. HMRC has confirmed EV BIK rates through 2029/30, rising to a maximum of 9% — still substantially below petrol or diesel equivalents which can reach 37%.
How does EV salary sacrifice work for company cars?
For ultra-low emission vehicles (75g/km or less), HMRC’s OpRA rules tax the BIK based on the vehicle’s P11D value × BIK percentage, not the salary sacrificed. This preserves tax efficiency. A £50,000 EV generates only £2,000 BIK in 2026/27 (4% rate), costing a higher-rate taxpayer £800 income tax — versus £6,600 for an equivalent petrol car.
What are the AMAP rates for 2026/27?
HMRC Approved Mileage Allowance Payments for 2026/27 are: cars and vans 45p per mile for the first 10,000 business miles, then 25p; motorcycles 24p per mile; bicycles 20p per mile. AMAPs cover all running costs including fuel, insurance, maintenance and depreciation.
Shamim advises UK employers on company car policy, EV salary sacrifice schemes, fleet structuring, and the full P11D / Class 1A compliance cycle. He holds the CTA — the UK's highest tax qualification — and works with trading companies, medium businesses and owner-managed businesses on employer tax efficiency.