Electric company cars: how the benefit in kind charge really adds up
A fully electric company car carries a benefit in kind rate of just 4% in 2026/27, against up to 37% for a petrol or diesel car. That gap has made electric vehicles the default choice for company car fleets and salary sacrifice schemes.
The picture is shifting, though. The electric rate now rises every year, reaching 9% by 2029/30, and plug-in hybrids face a sharp increase from April 2028. Below we set out how the charge works, what it costs in practice, and what employers and employees should be planning for now.
How the charge is calculated
The taxable benefit is the car’s list price multiplied by an “appropriate percentage” set by its CO2 emissions. For a zero-emission car, that percentage is the flat electric rate.
Taxable benefit = (list price − capital contribution) × appropriate percentage − private use payments
- List price is the manufacturer’s price including options, VAT and delivery, but excluding VED and the first registration fee. Discounts the employer negotiates do not reduce it.
- Capital contributions by the employee reduce the list price, up to a maximum of £5,000.
- Private use payments the employee is required to make reduce the benefit pound for pound.
- The charge is time-apportioned for any period the car is unavailable (30 days or more).
The employee pays income tax on the benefit at their marginal rate. The employer pays Class 1A National Insurance at 15% on the same figure (see our tax calendar for the P11D and Class 1A deadlines).
Two points work in the electric car’s favour. There is no car fuel benefit charge for electricity, and charging at or near the workplace is exempt.
The rates to 2029/30
Rates are now legislated or announced through to 2029/30. The electric rate more than doubles over the period, while the gap to petrol and diesel stays wide.
| Tax year | Fully electric (0 g/km) | Plug-in hybrid (1–50 g/km) | Petrol/diesel maximum |
|---|---|---|---|
| 2026/27 | 4% | 4%–16% by electric range | 37% |
| 2027/28 | 5% | 5%–17% by electric range | 37% |
| 2028/29 | 7% | 18% flat | 38% |
| 2029/30 | 9% | 19% flat | 39% |
The 2028/29 and 2029/30 rates were set at Autumn Budget 2024. Nothing has yet been announced beyond 2029/30.
Worked example: electric vs petrol
On a £45,000 car, a higher rate taxpayer pays £720 a year in company car tax on an electric model, against £5,760 on a petrol equivalent emitting 130 g/km.
| 2026/27, list price £45,000 | Electric (4%) | Petrol, 130 g/km (32%) |
|---|---|---|
| Taxable benefit | £1,800 | £14,400 |
| Tax at 20% | £360 | £2,880 |
| Tax at 40% | £720 | £5,760 |
| Tax at 45% | £810 | £6,480 |
| Employer Class 1A NIC at 15% | £270 | £2,160 |
The saving holds as rates rise. By 2029/30 the electric car’s benefit is £4,050 (9%), costing a 40% taxpayer £1,620. The petrol car at 34% would be £15,300, or £6,120 in tax.
Over the four years from 2026/27 to 2029/30, a 40% taxpayer would pay around £4,500 on the electric car against £23,580 on the petrol one. The employer’s Class 1A bill shows a similar gap. Scottish taxpayers should apply their own rates.
Plug-in hybrids: the 2028 cliff edge
From 6 April 2028, every car emitting 1–50 g/km moves to a single 18% rate, rising to 19% in 2029/30, regardless of electric range. A long-range hybrid taxed at 7% today would see its rate more than double overnight.
On a £45,000 hybrid with 70–129 miles of range, the benefit jumps from £3,150 (7%) in 2026/27 to £8,100 (18%) in 2028/29. For a 40% taxpayer, that is an extra £1,980 a year.
There is a separate complication. Newer hybrids are tested under the stricter Euro 6e-bis standard, which records higher CO2 figures and could push many over 50 g/km. Budget 2025 introduced a temporary easement to stop this raising the benefit charge, for hybrids first registered from 1 January 2025 to 5 April 2028 under the newer standards. It applies retrospectively, so employers may need to correct earlier P11Ds or payrolled benefits. (GOV.UK policy paper, HMRC EIM24710)
Salary sacrifice
Electric cars are one of the few benefits where salary sacrifice still delivers a real tax saving. Under the optional remuneration rules, a sacrificed benefit is usually taxed on the higher of its normal value and the salary given up. Cars emitting 75 g/km or less are carved out, so an electric car is taxed on its low benefit in kind value alone.
Take a 40% taxpayer sacrificing £500 a month (£6,000 a year) for the same £45,000 electric car:
| Income tax saved (40%) | £2,400 |
| Employee NIC saved (2%) | £120 |
| Company car tax payable | (£720) |
| Net cost to employee | £4,200 |
| Employer NIC saved (15%), less Class 1A of £270 | £630 |
The employee effectively gets a £6,000-a-year car for £4,200, typically including insurance and maintenance. Employers should check that the sacrifice does not take anyone below the National Minimum Wage, and that lease terms deal with early termination. Note that the 2029 cap on NIC relief for pension salary sacrifice does not apply to car schemes.
Charging and mileage
The treatment of electricity is where many errors creep in.
- Workplace charging is exempt, whether the car is a company car or the employee’s own.
- No fuel benefit charge arises when the employer pays for electricity used in a company car.
- Business mileage in a company electric car can be reimbursed tax-free at HMRC’s Advisory Electric Rate: from 1 September 2026, 7p per mile for home charging and 15p per mile for public charging. A higher rate is only tax-free if the employer can show the actual cost per mile was higher.
- Home electricity bills paid or reimbursed by the employer beyond business mileage are generally taxable, as the employer is meeting the employee’s own liability.
- A home charge point paid for by the employer is generally a taxable benefit, as the workplace exemption does not extend to the employee’s home.
Rates are reviewed quarterly, with the next change due on 1 December 2026.
The business side
Benefit in kind is only part of the cost. Three other changes affect the overall decision.
- Capital allowances. The 100% first year allowance for new zero-emission cars and charge points was extended at Budget 2025 to 31 March 2027 for companies and 5 April 2027 for unincorporated businesses. After that, electric cars fall into the main pool, where the writing down allowance has been cut to 14%.
- Vehicle Excise Duty. Electric cars have paid VED since April 2025. From 1 April 2026 the expensive car supplement threshold rose from £40,000 to £50,000 for zero-emission cars, with the supplement itself at £440 for 2026/27.
- Pay-per-mile charge. Budget 2025 confirmed a new per-mile charge for electric and plug-in hybrid cars from April 2028. The detailed mechanics are still under consultation, but fleets should start building it into whole-life cost models.
What to do now
Electric cars remain the most tax-efficient company car by a wide margin, but decisions made today run into higher rates.
- Price leases at future rates. A four-year lease signed now runs into 2029/30. Budget on 7% and 9%, not 4%.
- Review hybrid policies before April 2028. Long-range hybrids lose most of their advantage at the flat 18% rate. Consider moving drivers to fully electric at renewal.
- Check the hybrid easement. If you provide hybrids registered since 1 January 2025, confirm the correct CO2 figure has been used and amend past returns if needed.
- Time purchases for the first year allowance. Businesses buying outright should consider ordering before 31 March 2027.
- Get the mileage rates right. Use the home or public Advisory Electric Rate and keep evidence of where charging took place.
- Watch the next Budget. Rates beyond 2029/30 are unannounced and the pay-per-mile charge is still being designed.
If you would like us to model the cost of a company car or salary sacrifice scheme for your business, please get in touch.
This article is for general information only and reflects the position at 5 October 2026. It is not advice for any specific situation.