Order a new company car this summer and the tax bill attached to it will look different from the one on the car it replaces — even if you tick the box for exactly the same electric model. HMRC's benefit-in-kind percentages moved again on 6 April 2026, the fuel benefit charge crept up with inflation, and the timetable for reporting all of it through payroll rather than a P11D form has finally been nailed down. None of this is dramatic on its own. Stacked together, though, it changes the sums on whether an electric car, a plug-in hybrid or a straightforward petrol hatchback is still the cheapest way to get a director or a senior employee from home to client meetings.
The electric rate just moved from 3% to 4%
Pure battery-electric cars are taxed as a benefit-in-kind at 4% of the car's list price for 2026/27, up from 3% in 2025/26. On a £40,000 Volkswagen ID.7 or a similarly priced Tesla Model 3, that lifts the taxable benefit from £1,200 to £1,600 a year — a basic-rate taxpayer's monthly bill rises from roughly £20 to £26.67, hardly the kind of number that changes a purchasing decision on its own. The direction of travel matters more than the size of any single step, though. HMRC confirmed in the Autumn Budget on 26 November 2025 that the electric rate climbs by one percentage point a year until it reaches 5% in 2027/28, then continues upward to a 9% cap by 2029/30. A three-year lease signed today will run through at least two, and possibly three, of those increases, so the "4%" quoted by a dealer this month is only the opening figure, not the number you will actually be paying by year three. It is worth checking the exact figure against the year the car is actually delivered rather than the year the order was placed, because a car ordered in March but registered in May moves straight into the new tax year's rate. Fleet managers who renew every spring on the assumption that "last year's numbers still apply" are the ones who end up explaining an unexpected tax code change to a confused employee in the fourth quarter.
Petrol and diesel still carry a much heavier bill
Combustion-engined cars are banded by CO2 output in roughly 5g/km steps, starting at 17% for cars emitting 51–54g/km and climbing about one percentage point per band up to a 37% cap that applies to everything from 170g/km upward. Take a typical petrol hatchback — a Ford Focus or a Vauxhall Astra with combined emissions somewhere in the 110–130g/km range — and it usually lands around the 28–32% mark. Put a £28,000 example at 30% through the numbers and a 40% taxpayer owes £8,400 of taxable benefit, which works out at £3,360 a year in income tax on the car alone, before fuel or National Insurance enter the calculation. Diesel adds a further 4-percentage-point supplement across most bands unless the car meets the RDE2 emissions standard — a detail that catches out buyers who assume "diesel is cleaner now" without actually checking the certificate of conformity. Ordinary self-charging hybrids sit in this same combustion table rather than the electric one, since they have no plug and no meaningful electric-only range, so a hybrid Toyota Corolla with modest emissions still lands somewhere in the high teens to low twenties, not anywhere near the 4% electric rate. The CO2 figure that actually matters is the WLTP test figure on the vehicle's certificate of conformity, not the number on the manufacturer's brochure or the one quoted in a magazine road test, and the two can differ by several grams per kilometre once options like larger alloy wheels are added to the specification.
Plug-in hybrids sit in an awkward middle
Plug-in hybrids are taxed on both CO2 output and their electric-only range, which produces a genuinely strange result: two PHEVs with near-identical combined fuel economy figures can land many percentage points apart in BIK, because one manages considerably more miles on the battery alone than the other. For 2026/27 the plug-in hybrid bands run from around 6% at the longest electric ranges down to 19% at the shortest, and most mainstream plug-in hybrids currently on sale sit somewhere in the middle of that spread. That is a reasonable deal on paper.
It falls apart the moment nobody in the business actually plugs the car in. A PHEV driven exclusively on its petrol engine gets none of the tax advantage its band promised and considerably worse real-world fuel economy than a comparable diesel — you end up paying for a battery you never use, plus a fuel bill that a straight diesel would have beaten.
Vans get a flat rate that ignores CO2 entirely
Company vans do not care about your CO2 figure.
Instead of a percentage of list price, vans used privately attract a flat benefit charge of £4,170 for 2026/27, up from £4,020 the year before, regardless of whether the vehicle is a Ford Transit Custom or a Volkswagen Transporter. A basic-rate taxpayer pays roughly £834 a year on that; a higher-rate taxpayer pays around £1,668. The one genuine escape route is a fully electric van: those attract a nil rate under the van benefit charge, so a business running an electric Transit or a Vauxhall Vivaro Electric for private use as well as work journeys pays no benefit-in-kind tax on the vehicle at all — one of the few tax perks in this area that has not been quietly chipped away year after year.
Free private fuel almost never pays off any more
If an employer also pays for private fuel, HMRC applies a separate charge: multiply a fixed figure — £29,200 for 2026/27 — by the same CO2-based percentage used for the car benefit itself. For a diesel estate in the 33% band, that works out at £9,636 of taxable benefit purely for the fuel, on which a 40% taxpayer pays roughly £3,854 in tax. Compare that with simply reimbursing actual private mileage, or asking the employee to repay private fuel in full, and the free-fuel perk rarely survives the comparison unless someone genuinely does a very high proportion of high-mileage private driving. Electric cars sidestep the whole calculation: HMRC does not treat electricity as "fuel" for this charge, so a business covering a director's home charging costs is not creating a taxable fuel benefit in the same way a filled-up diesel tank would.
The employer's share: 15% Class 1A National Insurance
None of the figures above are the whole story from the business's side. Employers pay Class 1A National Insurance at 15% on the value of every benefit reported, up from 13.8% before April 2025, and that charge falls on the full taxable value of the car, the fuel benefit and the van charge alike. On a £1,600 electric car benefit, that is a further £240 a year the company pays on top of whatever else the car costs to run. It is small next to the equivalent bill on a diesel estate, but it is not zero, and it belongs in the total cost of ownership spreadsheet rather than being treated as purely an employee problem.
Payrolling benefits becomes mandatory from April 2027
Most benefits, including company cars, are still reported after the fact on a P11D form, with the tax collected through an adjusted tax code the following year — a system HMRC has wanted to retire for over a decade. Mandatory payrolling of benefits, where the tax on a company car is deducted from salary in real time rather than caught up months later, is now due to apply from April 2027, after the start date was pushed back more than once. Businesses that start payrolling voluntarily ahead of the deadline avoid a scramble when it becomes compulsory, and employees see a more accurate monthly payslip instead of an unexplained tax code change the following autumn.
Salary sacrifice turns the same 4% rate into a recruitment tool
None of this only applies to cars the business buys outright or leases in its own name. Under an electric car salary sacrifice scheme, the employer leases the vehicle and the employee gives up part of their gross salary to cover it — before Income Tax and National Insurance are calculated, not after. Take an employee on £45,000 sacrificing £450 a month for a £35,000 electric car: taxable pay drops to roughly £39,600, saving around £1,080 in Income Tax and £432 in employee National Insurance over the year, against a benefit-in-kind charge of only about £280 at the 4% rate. Run the same car through a personal lease instead and the employee is typically paying £475–£525 a month for less.
The employer side works too, not just the employee's. Every pound sacrificed reduces the payroll bill the business runs its 15% Class 1A and employer National Insurance against, so a firm with ten staff each sacrificing £500 a month saves in the region of £9,000 a year in employer National Insurance alone — at no net cost, because the lease is funded entirely from salary the employee would otherwise have taken as pay. It will not suit every business (cash-flow-sensitive firms with high staff turnover should think twice before locking into three-year leases against departing employees), but for a stable team wanting electric cars without touching the company's own balance sheet, it is currently one of the better-value perks on offer.
What this actually means for your next fleet order
Run the numbers rather than trusting a rule of thumb. Go electric if the daily mileage genuinely suits it — the 4% rate still beats every combustion alternative by a wide margin, and it will keep doing so even as it rises to 9% by 2029/30. Do not order a plug-in hybrid unless someone is actually going to charge it every night; if that discipline is not realistic across your drivers, a straightforward petrol hatchback in a lower CO2 band will end up cheaper overall once you account for the fuel it actually burns rather than the fuel it was supposed to save. And if private fuel is being covered as well, work through the £29,200 multiplier before assuming it is a perk worth offering. For most business mileage patterns, it no longer is.