Electric company car BIK rates 2026/27: what fleet managers need to know.

7 min read · 18 February 2026. Benefit-in-Kind tax is the single largest reason a UK driver chooses an electric company car over a diesel. The numbers are not subtle. A driver paying 40% income tax sees roughly £480 a year of BIK on a £40,000 EV. The same driver in the equivalent diesel sees £5,000. This guide covers exactly what BIK is, how it is calculated, what the announced rates do through 2027/28, and why the salary sacrifice route stacks the same advantage on top of itself.

What BIK actually is

Benefit-in-Kind (BIK) is the income tax an employee pays on the value of a non-cash benefit provided by their employer. A company car is the most common BIK in the UK; medical insurance, gym membership and accommodation are others. The principle is that anything an employer gives an employee that has cash-equivalent value is taxable.

For company cars, HMRC sets a BIK percentage rate against each vehicle, derived from CO₂ emissions, fuel type and electric range. The percentage is applied to the vehicle's P11D value — list price plus options and delivery, minus a small set of allowances — to produce the taxable benefit. The driver pays income tax on that benefit at their marginal rate (20%, 40% or 45%). The employer separately pays Class 1A National Insurance on the same taxable value (currently 13.8%, with announced changes through the rest of the decade).

The 2025/26 rate: 3%

For the 2025/26 UK tax year (running 6 April 2025 to 5 April 2026), the BIK rate on a fully electric company car is 3%. This applies to any car with zero tailpipe CO₂ emissions — battery electric vehicles, in practice.

The arithmetic on a typical EV company car works out cleanly. A £40,000 P11D-value EV at 3% BIK produces a taxable benefit of £1,200. A 40% rate taxpayer pays £480 of income tax on that benefit per year. A 20% rate taxpayer pays £240. The employer's Class 1A NIC on £1,200 at 13.8% is roughly £165.

The same £40,000 vehicle as a high-emission diesel at 37% BIK produces a taxable benefit of £14,800. A 40% rate driver pays £5,920 in BIK income tax per year. The employer's Class 1A NIC is over £2,000.

The gap — £5,440 of personal tax saving for the higher-rate driver — is large enough to be the deciding factor in most company-car selections in the UK in 2026.

The announced trajectory: 4%, 5%

The EV BIK rate is rising on a pre-announced schedule:

2025/26: 3%
2026/27: 4%
2027/28: 5%

The 1%-per-year gradient is the shape HMRC has used through the early 2020s, and the trajectory is widely expected to continue at the same rate beyond 2027/28 as the EV share of the new-car market grows. Even at 5%, the EV BIK is dramatically lower than ICE — and the ICE rates are not falling, so the gap is structurally durable through the rest of the decade.

Fleets and drivers signing 3 to 4 year contracts in 2026 are signing into the BIK regime that will apply across the contract — meaning the rate the driver pays in year three is already known when they sign in year one. That predictability is one reason fleet planning has moved decisively toward EV: the cost is calculable and lower across the contract horizon.

How BIK tax is calculated, end to end

The full BIK calculation has six inputs:

1. P11D value: manufacturer list price + factory options + delivery + first registration fee, minus the £80 first registration fee in some cases, minus a £4,000 capital contribution if the driver pays one.
2. BIK percentage: set by HMRC against fuel type, CO₂ and electric range. 3% for BEVs in 2025/26.
3. Taxable benefit (annual): P11D × BIK%.
4. Driver income tax: Taxable benefit × driver's marginal rate (20% / 40% / 45%).
5. Employer NIC: Taxable benefit × Class 1A rate (13.8% in 2025/26, with announced changes ahead).
6. Fuel benefit: a separate BIK on private fuel paid by the employer; not relevant for pure BEVs since electricity is treated differently.

The result is typically reported as monthly take-home cost to the driver and as an annual NIC line in the employer's payroll cost.

EV vs PHEV vs diesel BIK

The BIK regime is differentiated by powertrain, and the differences are large enough to drive selection.

BEV (battery electric): 3% in 2025/26.
PHEV (plug-in hybrid): 5% to 12%, depending on electric-only range. The lowest PHEV band (130+ miles of pure-electric range) attracts 5%, falling to 12% for shorter electric ranges. Most PHEVs available in the UK fleet market sit in the 8–12% band.
Diesel: 25% to 37%, depending on CO₂. A typical fleet diesel sits around 30%.
Petrol (non-hybrid): typically 24% to 37%, with a similar shape.

The differential between BEV (3%) and even the cleanest PHEV (5%) is large enough that the BIK alone has shifted the company car market structurally toward BEVs. The implications of that shift — supply, residuals, charging infrastructure — are the operational story of UK fleet planning right now.

Why low BIK is driving EV adoption

BIK has done more for UK EV adoption than any direct subsidy. The Plug-in Car Grant ended in 2022; the BIK gap is what replaced it as the structural incentive — and it is more durable than a grant because it sits in the tax code rather than a discretionary spending line.

For employees, the choice between a £40,000 EV at 3% BIK and a £40,000 diesel at 30% BIK is a £4,300-per-year personal tax decision. Multiplied across a higher-rate-taxpayer's marginal income, that compounds materially over a career. Fleet managers report that the EV is now the only company car most drivers are interested in — which simplifies the operational planning even as it tightens the supply.

For employers, the Class 1A NIC saving on the same vehicle is over £1,800 per year per driver — material across a fleet of any size. A 100-vehicle fleet running EVs against the same fleet running diesels saves the employer roughly £180,000 per year in Class 1A NIC alone, before considering the operating-cost differences in our complete EV transition guide.

The salary sacrifice advantage

For employees who do not have a company car as a benefit and would otherwise lease privately, salary sacrifice on an EV stacks the BIK advantage on top of gross-deduction tax efficiency. The lease cost is deducted from gross pay before income tax and National Insurance are calculated; the resulting BIK is at the 3% EV rate; the employer's Class 1A NIC is on the BIK value, not the gross deduction.

The combined effect is typically a 30–40% saving against the equivalent post-tax cost of a private lease. The advantage is largest for higher-rate taxpayers, where the gross-deduction NI saving is at 2% rather than 8%, but the BIK and income-tax saving is largest. Our Perx programme extends the salary sacrifice principle to home chargers, solar and battery storage — the entire EV ownership package, deducted gross.

What fleet managers should do with this

The BIK landscape has been stable in shape — EV materially cheaper than ICE — for several years and is signalled to remain so. Three operational implications follow.

Quote BIK in the company-car offer. Drivers compare lease rates; fleet managers see total cost. The BIK number on the driver's payslip is what closes the decision and is the same number every month.

Use BIK savings to fund the transition. The employer's Class 1A NIC saving on the EV vs the diesel is real money. Some fleets explicitly use it to subsidise home charger installation for drivers, accelerating the operational viability of the transition.

Measure real cost. The BIK saving is one part of the EV economics. The other is real charging cost per mile against real fuel cost per mile — which most fleets get wrong because they use generic figures rather than their own data. The same data layer that surfaced the EV reimbursement gap is the one a serious fleet runs the BIK + TCO comparison on. An OEM-native fleet intelligence platform connects to vehicle telemetry to surface real per-mile cost continuously.

Frequently asked questions

What is the BIK rate for electric cars in 2026?

For the 2025/26 UK tax year, the BIK rate on a fully electric company car is 3% of the vehicle's P11D value. The rate is announced to rise to 4% for 2026/27 and 5% for 2027/28. By comparison, the highest-emission diesel cars sit at 37%, with most ICE company cars in the 25–35% range. The gap is the largest single driver of EV company car uptake in the UK.

How is company car BIK tax calculated?

Company car BIK tax is calculated as the vehicle's P11D value (essentially list price plus options and delivery) multiplied by the BIK percentage rate set by HMRC for that vehicle, multiplied by the employee's marginal income tax rate. The employer separately pays Class 1A National Insurance Contributions (NIC) on the same taxable value. For a £40,000 EV at 3% BIK with a 40% rate driver, the employee tax is roughly £480 per year and the employer Class 1A NIC is roughly £165.

Will electric car BIK rates increase?

Yes. The published rates rise by 1% per year through the late 2020s — 3% in 2025/26, 4% in 2026/27, 5% in 2027/28 — and are likely to continue rising thereafter as the EV share of the new-car market grows. The increases are gentle by company-car-tax standards, and the gap to ICE BIK rates remains substantial. EVs are not getting more expensive to drive on tax; ICE is staying as expensive as it has been.

Is salary sacrifice better than a company car allowance for EVs?

For most UK employees with a need for a vehicle, salary sacrifice on an EV is more tax-efficient than taking a company car allowance and buying or leasing privately. The salary sacrifice arrangement deducts gross pay before income tax and National Insurance, and the resulting BIK on a fully electric car is only 3% in 2025/26. The combined effect is typically a 30–40% saving against the equivalent post-tax cost of a private lease. Schemes like Perx extend the salary sacrifice principle to home chargers, solar and battery storage.