Key facts
- The BIK rate for pure electric vehicles (0 g/km CO2) is just 2% in 2025/26, rising to 3% in 2026/27 and 4% in 2027/28.
- A 40% taxpayer with a £40,000 electric company car pays only £320 per year in BIK tax (2% × £40,000 × 40%).
- Plug-in hybrids are taxed at 2–14% depending on CO2 emissions and electric-only range.
- Employers save up to 15.05% in Class 1A National Insurance on the lower BIK value of an EV versus a petrol/diesel car.
- Salary sacrifice for EVs is one of the few arrangements not caught by the Optional Remuneration Arrangement (OpRA) rules for ultra-low emission cars.
How Company Car BIK Works
When your employer provides a company car for private use, you pay tax on the Benefit-in-Kind value. The BIK is calculated as:[2]
List price × BIK percentage = Taxable benefit
The list price is the manufacturer’s recommended retail price (including extras and delivery) when the car was new. The BIK percentage depends on the car’s CO2 emissions and, for low-emission vehicles, the electric-only range. You pay Income Tax on the taxable benefit at your marginal rate (20%, 40%, or 45%). If you complete a Self Assessment return, the benefit is declared there as part of your employment income — you can file your return online with HMRC-recognised software.
BIK Rates for Electric & Low-Emission Cars
The government has set ultra-low BIK rates for electric vehicles to encourage uptake:[1]
| CO2 (g/km) | Electric Range | 2025/26 | 2026/27 | 2027/28 |
|---|---|---|---|---|
| 0 | N/A (pure EV) | 2% | 3% | 4% |
| 1–50 | 130+ miles | 2% | 3% | 4% |
| 1–50 | 70–129 miles | 5% | 6% | 7% |
| 1–50 | 40–69 miles | 8% | 9% | 10% |
| 1–50 | 30–39 miles | 12% | 13% | 14% |
| 1–50 | < 30 miles | 14% | 15% | 16% |
| 51–54 | — | 15% | 16% | 17% |
| 55–59 | — | 16% | 17% | 18% |
| 170+ | — | 37% | 37% | 37% |
For comparison, a typical petrol car emitting 130 g/km CO2 attracts a BIK rate of around 30%. The difference between 2% and 30% translates to thousands of pounds in annual tax savings.
Tax Savings: EV vs Petrol Comparison
The following example compares a pure EV and a petrol car, both with a £40,000 list price, for a 40% higher-rate taxpayer in 2025/26:
| Item | Electric (0 g/km) | Petrol (130 g/km) |
|---|---|---|
| List price | £40,000 | £40,000 |
| BIK rate | 2% | 30% |
| Taxable benefit | £800 | £12,000 |
| Employee tax (40%) | £320/year | £4,800/year |
| Employer Class 1A NI (15.05%) | £120 | £1,806 |
| Total annual tax cost | £440 | £6,606 |
The EV saves £6,166 per year in combined employee and employer tax — a compelling argument for switching.
Key point: The 2% rate applies to the full list price, including any options fitted before delivery. However, it does not include the cost of a home charger installed by the employer — workplace and home charging provided by the employer is currently a tax-free benefit.
Salary Sacrifice for EVs
Salary sacrifice is one of the most popular ways to access a company EV. You agree to reduce your gross salary by a set amount each month, and in return your employer leases an EV for your use.[3]
Normally, salary sacrifice arrangements are caught by the Optional Remuneration Arrangement (OpRA) rules, which tax the benefit at the higher of the BIK value or the salary sacrificed. However, cars with CO2 emissions of 75 g/km or less are exempt from OpRA, meaning you pay tax only on the BIK value (2% for pure EVs), even if the sacrificed salary is much higher.
How the Savings Stack Up
Suppose you sacrifice £500/month (£6,000/year) of gross salary for a £40,000 EV. As a 40% taxpayer:
- Without salary sacrifice: £6,000 net cost = £10,000 gross salary needed (after 40% tax + 8% NI)
- With salary sacrifice: £6,000 salary reduction + £320 BIK tax = £6,320 total cost
- Annual saving: approximately £3,680
You also save National Insurance on the sacrificed salary, and your employer saves employer NI too.
Tip: Salary sacrifice reduces your gross pay, which can affect mortgage applications, pension contributions (if based on contractual pay), and student loan repayment calculations. Check these implications before committing.
Workplace & Home Charging
Electricity provided at a workplace charging point for an employee’s electric vehicle is a tax-free benefit. This applies to both company cars and employees’ own cars.[2]
If the employer pays for or installs a home charger for the employee, this is also currently tax-free provided the charger is used in connection with a company car.
However, if the employee charges at home using their own electricity, they may need to reclaim the cost through an expense claim. Many employers provide an advisory electricity rate (currently 7p per mile for pure EVs) to reimburse home charging costs tax-free.
Employer NI Savings & Capital Allowances
Employers benefit from EVs in two ways:
- Lower Class 1A NI: Employer NI is charged at 15.05% on the BIK value. A 2% BIK versus 30% means an NI saving of over £1,600 per car per year
- 100% First-Year Allowances: Businesses can deduct the full cost of a new zero-emission car against taxable profits in the year of purchase (no need to spread it over several years via writing-down allowances)
Frequently Asked Questions
What is the BIK rate for electric cars in 2025/26?
The Benefit-in-Kind rate for fully electric company cars (0 g/km CO2) is 2% of the car’s list price for 2025/26. This means an electric car with a list price of £40,000 has a taxable benefit of just £800, costing a 20% taxpayer £160 per year in tax.
How does salary sacrifice for EVs work?
You agree to give up part of your gross salary in exchange for the employer providing an electric car. You pay BIK tax on 2% of the list price instead of Income Tax and National Insurance on the sacrificed salary. For a £40,000 car, a 40% taxpayer could save over £3,000 per year compared to buying privately after tax.
Are plug-in hybrids taxed the same as pure EVs?
No. Plug-in hybrids are taxed based on their CO2 emissions and electric-only range. A hybrid with 1–50 g/km CO2 and an electric range of 130+ miles gets 2%, but one with only 30 miles of electric range and the same CO2 band could be taxed at 12–14%. Full details depend on the specific emissions and range figures.
Does the employer also save tax on EV company cars?
Yes. Employers pay Class 1A National Insurance at 15.05% on the BIK value. A lower BIK value means a lower employer NI bill. On a £40,000 EV, the employer’s NI cost is roughly £120 per year versus over £1,800 for an equivalent petrol car at 30% BIK.
Further Reading
- Employment Income — how benefits in kind are taxed alongside your salary
- Tax Codes Explained — how your BIK is reflected in your PAYE code
- Mileage Allowance Rates — advisory rates for business travel in company and private cars
- Allowable Expenses — what self-employed drivers can claim for vehicle costs
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