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Are Electric Cars Good For Company Car Tax?

Are Electric Cars Good For Company Car Tax?

Company car tax is a major consideration for both businesses and employees, one simple specification change can cause hundreds of pounds more in tax. This is a large reason why electric cars have been so popular. 

But with the new government budget, are they still good for company car tax, and is that set to change?

What is Company Car Tax?

When an employee is given a company car that can be used for non-business purposes, that is defined as an employment benefit and is therefore subject to taxation.

The level of taxation is dependent on the vehicle’s emissions level, its value when new and your personal tax bracket.

As an incentive to reduce emissions, company car tax rates are almost universally lower for electric and hybrid cars. With around one million company cars on UK roads, this is sure to have benefits to our national environmental impact.

Company Car Tax Rates

Electric Company Car Tax

Since their emissions are zero, the benefit in kind (BiK) for electric cars is set at the lowest rate possible; 2%. This will rise between 2025 and 2029:

  • From April 2025: 3%
  • From April 2026: 4%
  • From April 2027: 5%
  • From April 2028: 7%
  • From April 2029: 8%

However, the BiK rate is not the only factor in calculating how much tax you will pay, read on for more on that.

Why is Company Car Tax Rising For Electric Cars?

Ultimately, the taxation of motoring as a whole is on the rise, but electric car rates are not rising as quickly as petrol and diesel, meaning there is still an incentive for drivers to pick electric where possible.

The same story can be seen in VED or road tax, previously many electric cars were exempt, from 2025 there will be hundreds of thousands of Teslas, Leafs and other EVs that will pay nearly £200 per year, and £20 on first-year tax.

Once again though, these increases are minimal compared to petrol and diesel, with some reasonably modest cars attracting £700 in first-year road tax.

Hybrid Company Car Tax

Hybrids are a little more complex to work out, they are based, like petrol and diesel cars, on their emissions level, but also on their battery-only range.

Self-charging non-plug-in hybrids are essentially considered the same as petrol or diesel cars, as they emit more than 50 g/km CO2 and their battery-only range is usually in single digits. For this reason, the only factor that affects their BiK rate is their emissions. 

For example, a self-charging Toyota Prius has a CO2 emission figure of 94, meaning its rate is 23%. A PHEV Prius with its 39-mile electric range, is charged 12% BiK.

Below is a table of the plug-in-hybrid BiK rates, including the from April 2025 and from April 2026 rates too.

Plug-in-Hybrid Benefit in Kind Rates

CO2 (g/km) Electric range (miles) 23/24 rate - from April 24 (%) 24/25 rate - From April 25 (%) 25/26 rate - From April 2026 (%)
0 N/A (BEVs) 2 2 3
1 - 50 >130 2 2 3
1 - 50 70-129 5 4 6
1 - 50 40-69 8 8 9
1 - 50 30-39 12 12 13
1 - 50 <30 14 14 15

Petrol and Diesel Company Car Tax Rates

When comparing rates on PHEV or battery EVs to petrol and diesel cars it’s clear that the government is incentivising low-emission vehicles for company use. Many cars, even mild and conventional hybrids, have CO2 emissions that put their BiK rate at well above 20%.

The table below shows the benefit in kind rates for petrol and diesel vehicles - note there is an additional 4% charge for diesel cars that do not meet the RDE2 standard.

CO2 (g/km) Electric range (miles) 23/24 rate - from April 24 (%) 24/25 rate - From April 25 (%) 25/26 rate - From April 2026 (%)
0 N/A (BEVs) 2 2 3
1 - 50 >130 2 2 3
1 - 50 70-129 5 4 6
1 - 50 40-69 8 8 9
1 - 50 30-39 12 12 13
1 - 50 <30 14 14 15

How is Company Car Tax Calculated?

There are three factors that affect the amount you’ll pay per year for a  company car, these are:

  • The car’s P11D Value
  • Your personal tax band
  • Benefit in kind rate 

What is P11D Value?

A car's P11D value is inclusive of any optional extras and delivery but does not include the registration and first-year tax. The P11D Value will often be listed on the manufacturer's website or lease information.

How Your Tax Band Affects Company Car Tax

Because a company car is considered remuneration, the tax band you are currently in will affect the additional tax from a company car. The tax bands for income tax are shown below:

Tax Band Income Tax Rate Basic Up to £50,270 20% Higher £50,270 - £125,140 40% Additional Over £125,140 45%

Benefit in Kind Rate

This is determined by the car's emissions level, and if it's a plug-in hybrid, its electric-only range. I go over this in greater detail in an earlier section.

Calculating Company Car Tax

Step 1:  Calculate the taxable value, to do this multiply the car’s P11D Value by the BiK percentage rate, for example, a £35,000 hybrid car with a 30-mile range would be:

£35,000 x 0.12 (12%) = £4,200

Step 2: Apply this to your personal tax rate, If you are a basic rate taxpayer:

£4,200 x 0.2 (40%) = £840

£1,680 is the additional tax you will pay per year, due to receiving that company car.

How Does Your Tax Band Affect Company Car Tax?

The amount you get paid and therefore your income tax band massively affect how much company car tax you will pay. This is because a company car is considered an alternative form of income, so is taxed at the same rate.

As we saw in the example above if you have a company car worth £35,000 and are in the basic rate tax bracket, you will pay £840 per year.

If you were in the higher rate bracket, this amount would increase to £1,680 per year.

Are Electric Cars Still Better For Company Car Tax?

Yes, electric cars still offer much cheaper company car tax rates than hybrids or petrol cars. Even with the proposed increases, the benefit in kind rate of EVs will be 5x lower than that of the cheapest petrol car.

Furthermore, most petrol and diesel cars have an even higher rate. The latest generation self-charging Toyota Corolla hybrid, a car famed for being environmentally friendly, will be subject to a 27% BiK rate from April 2025. That’s in contrast to a fully electric car’s 3%.

Whilst road tax or VED on EVs is to be raised to the same level as petrol and diesel cars, the first-year tax bill will be significantly lower. All EVs will have to pay £10 for the first year, many petrol and diesel cars will pay 20x that.

Electric Vans and Company Car Tax

Vans and other commercial vehicles benefit from slightly different company car tax rules, there are two use cases for petrol or diesel vans:

  • If the van is only used for business uses, and occasional, insignificant use (e.g. a trip to a doctor's appointment during working hours), then no company car tax is due
  • If the van is used for personal use, then a flat rate is applied, which is affected by your personal tax band.

Are Electric Vans Exempt From Company Car Tax?

Yes, all company-supplied electric vans and commercial vehicles (this includes certain pickup trucks, too) are exempt from company car tax, regardless of the amount of personal usage.

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Author - Joseph Law

Joseph has been writing about cars for over seven years and writing for Bumper for over two, blending his passion for automobiles with a talent for storytelling.

Joseph has written about engineering and cars for Autozilla, Komaspec, and several engineering manufacturers. When he's not writing or tinkering with one of his cars, Joseph dreams of owning an Alfa Romeo 33 Stradale.

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