Why company cars have such a bad reputation
Ask most accountants about company cars and you'll get a wince, not a recommendation. That's because the tax system is deliberately built to discourage them for anything other than low-emission vehicles — and for a petrol or diesel car, the numbers rarely work in the director's favour once you compare it to simply buying the car personally and claiming mileage.
But the rules aren't blanket-bad. For electric vehicles in particular, a company car can be one of the more tax-efficient perks available to a director in 2026/27. The trick is understanding how the tax charge is actually calculated before you commit to anything.
How the tax charge works
If your company provides you with a car for personal use, HMRC treats that as a "benefit in kind" (BIK) — effectively extra income you're taxed on, even though no cash changes hands. The taxable value is calculated as:
- The car's P11D value (list price including VAT and extras, ignoring any discount you negotiated), multiplied by
- A BIK percentage set by HMRC based on the car's CO2 emissions (and electric range, for hybrids)
That figure becomes your taxable benefit for the year, added to your income and taxed at your marginal rate (20%, 40% or 45%). The company also pays Class 1A National Insurance at 15% on the same benefit value.
The rates that matter in 2026/27
This is where electric vehicles pull dramatically ahead. For 2026/27, fully electric cars sit at just a 4% BIK rate — up slightly from 3% the year before, but still remarkably low. Most conventional petrol and diesel cars, by contrast, sit at the top of the scale, up to a 37% BIK rate, where it's been frozen for a few years now (though it's due to start climbing again from 2028/29).
Run the numbers on a typical example: a £45,000 electric car at 4% gives a taxable benefit of just £1,800 a year — a basic rate taxpayer pays £360 in tax on that, a higher rate taxpayer £720. Put a £45,000 diesel estate in the same scenario at 37%, and the taxable benefit jumps to £16,650 — over £6,600 a year in tax for a higher rate taxpayer, every year you keep the car.
So when does it actually make sense?
As a rough rule of thumb:
- Fully electric car, high personal mileage: often genuinely worth it — low BIK, plus the company can usually reclaim VAT on the cost if there's no significant private use of a pool car, and claim capital allowances on the purchase.
- Petrol or diesel car, any mileage: almost never worth it through the company. You're usually better off owning it personally and claiming 45p a mile for the first 10,000 business miles (25p after that) tax-free from the company.
- Plug-in hybrid: depends heavily on the electric-only range — the rules reward genuinely long-range hybrids and penalise ones with only a token electric range.
Don't forget the practical side
Electric vehicle salary sacrifice schemes are also worth a look if you want to offer this more broadly across the team, not just to directors — contributions come out of gross pay, reducing both income tax and employer/employee National Insurance, on top of the low BIK rate.
One more thing worth planning around: if you're going electric, a workplace or home charging point installed by the company is usually tax-free too, and electricity provided for charging isn't treated as a fuel benefit the way petrol or diesel would be.
The right answer depends entirely on your specific numbers — the car, your mileage, your personal tax rate, and how long you'll keep it. That's exactly the kind of thing worth running past us before you sign anything.