A fully electric company car is taxed on just 4% of its list price for 2026 to 2027, rising to 5% in 2027 to 2028, 7% in 2028 to 2029 and 9% from 2029 to 2030. Petrol and diesel cars sit at up to 37% now and 39% by 2029 to 2030, so even after the increases an electric car usually produces a benefit charge a fraction of a conventional one. The rates are fixed in section 139 of ITEPA 2003 as amended by the Finance Acts 2023 and 2025.
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How is an electric company car taxed?
The method is the same as for any company car: list price plus accessories, less capital contributions, multiplied by the appropriate percentage, with reductions for unavailability and private use payments. Our page on how company car benefit is worked out explains each step. What makes electric cars different is the appropriate percentage. Section 139(1) sets a separate rate for a car with a CO2 emissions figure of 0, which in practice means a fully electric car.
What are the rates year by year?
The rates have been set by legislation well in advance. HMRC’s published tables and the Finance Act 2025 give:
| Tax year | Zero emission car | Maximum for other cars |
|---|---|---|
| 2025 to 2026 | 3% | 37% |
| 2026 to 2027 | 4% | 37% |
| 2027 to 2028 | 5% | 37% |
| 2028 to 2029 | 7% | 38% |
| 2029 to 2030 and later | 9% | 39% |
The 2025 to 2026 to 2027 to 2028 rates were announced at Autumn Statement 2022 and legislated in the Finance Act 2023. The increases for 2028 to 2029 and 2029 to 2030 were announced at Autumn Budget 2024 and enacted by sections 5 and 6 of the Finance Act 2025. Section 6 applies for 2029 to 2030 “and subsequent tax years”, so 9% continues until Parliament changes it. HMRC’s policy paper says the aim is to keep a significant differential between electric and petrol or diesel cars while increasing rates gradually.
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Why does an electric car remain tax efficient?
The gap is wide even with higher list prices. Illustration only. Compare two cars each with a list price of £45,000 for 2026 to 2027, provided to a higher rate taxpayer for the full year:
| Electric (0g/km) | Petrol (130g/km) | |
|---|---|---|
| Appropriate percentage | 4% | 32% |
| Cash equivalent | £1,800 | £14,400 |
| Employee tax at 40% | £720 | £5,760 |
| Employer Class 1A at 15% | £270 | £2,160 |
In 2029 to 2030, at 9%, the electric car’s cash equivalent would be £4,050 and the tax £1,620, still well below the petrol car’s charge in 2026 to 2027. Other features add to the advantage:
- No fuel benefit for electricity. HMRC confirms electricity is not a fuel for car fuel benefit purposes, so free charging for private miles does not trigger the separate charge explained in the car fuel benefit charge.
- Charging at work and charging an employer owned car. GOV.UK says an employer does not have to pay or report anything for charging an employee’s fully electric car that it owns or hires. See workplace EV charging.
- Business mileage reimbursements. From 1 September 2026 HMRC’s advisory electricity rate is 7p a mile for home charging and 15p a mile for public charging, which employers can use to reimburse business miles in a company electric car.
- Salary sacrifice still works. Under the optional remuneration rules a car provided through salary sacrifice is normally taxed on the higher of the salary given up and the benefit in kind, but HMRC’s guidance says cars with CO2 emissions of no more than 75g/km always use the normal benefit in kind rules. See salary sacrifice schemes.
How are plug in hybrids taxed?
Cars with CO2 of 1 to 50g/km are taxed according to their electric range under section 139(1). For 2026 to 2027 the rates are:
| Electric range (miles) | 2026 to 2027 | 2027 to 2028 |
|---|---|---|
| 130 or more | 4% | 5% |
| 70 to 129 | 7% | 8% |
| 40 to 69 | 10% | 11% |
| 30 to 39 | 14% | 15% |
| Less than 30 | 16% | 17% |
From 2028 to 2029 the range bands go. Section 5 of the Finance Act 2025 replaces them with a single rate of 18% for all cars of 1 to 50g/km, rising to 19% from 2029 to 2030. That is a sharp change for a long range plug in hybrid currently taxed at 4% to 7%, and it is the main reason the gap between fully electric and hybrid cars widens from April 2028.
The electric range is taken from the certificate of conformity, converted to miles and rounded up. Cars first registered from 6 April 2020 use WLTP figures.
What is the 1g/km rule for newer hybrids?
GOV.UK explains an easement for plug in hybrids registered from 1 January 2025 to 5 April 2028. The car is valued as if its CO2 figure were 1g/km where it shows CO2 of 51g/km or more on the registration certificate, has an electric range of at least 1 mile, and the Euro status on the registration certificate does not show Euro 6d ISC FCM or Euro 6e. Employers should check the registration certificate rather than assume the headline figure applies.
What else should employers consider?
- List price is still the base. Electric cars often have higher list prices, and non standard extras fitted when the car is first provided are added as accessories.
- Rates are locked to the tax year, not the car. A car acquired in 2026 will be taxed at 9% by 2029 to 2030. Leases signed now will run into the higher rates.
- Capital allowances for the employer are a separate question; see capital allowances on cars.
- Reporting is unchanged. The benefit goes on the P11D or through payroll, with Class 1A at 15% for 2026 to 2027.
What mistakes come up?
- Quoting last year’s rate. The zero emission rate rises every April to 2029 to 2030.
- Assuming a hybrid stays cheap. From 2028 to 2029 every 1 to 50g/km car is at 18%.
- Charging a fuel benefit on electricity. There is no car fuel benefit for electricity.
- Applying the salary sacrifice comparison to an electric car. Cars of 75g/km or less use the normal benefit rules.
- Ignoring the 1g/km easement. Some 2025 to 2028 hybrids qualify and will be over taxed if the V5C figure is used.
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Related Accountapedia entries
- Electric car salary sacrifice schemes
- Car allowance or company car: the tax comparison
- Advisory fuel rates for company cars
- Vehicle excise duty and the expensive car supplement
- Reducing company car benefit with contributions
- Plug in hybrid company cars and electric range
- Replacement company cars and the benefit charge
Related cover: Employers' liability insurance is a legal requirement for most employers. Ask for a quote or call 01795 841 310.
Sources
- legislation.gov.uk: Act 2003 c. 1, section 139
- GOV.UK: Co2 emissions tables of rates
- GOV.UK: Company car benefit the appropriate percentage 480 appendix 2
- legislation.gov.uk: Act 2025 c. 8, section 5
- legislation.gov.uk: Act 2025 c. 8, section 6
- GOV.UK: Taxation of company cars the appropriate percentage for tax years 2028
- GOV.UK: Rates and thresholds for employers 2026 to 2027
- GOV.UK: Whats exempt
- GOV.UK: Salary sacrifice and the effects on paye
- GOV.UK: Tax on company cars
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.