Below is a summary of the key points. Please get in touch if you'd like more detail on how any of this applies to you.

How the tax charge works

The taxable benefit of a company car is based on its list price, but the percentage of that price which is taxed depends on the car's carbon dioxide (CO2) emissions - the lower the emissions, the lower the percentage.

The government has also reduced the percentages that apply to lower-emission cars and introduced separate bands for hybrid vehicles with emissions of up to 50g/km, based on how far the car can travel on electric power alone.

The percentage bands for 2026/27

0 g/km emissions: 4% of the list price

1–50 g/km emissions: the percentage depends on the car's zero-emission driving range:

• More than 130 miles: 4%
 
• 70–129 miles: 7%
 
• 40–69 miles: 10%
 
• 30–39 miles: 14%
 
• Less than 30 miles: 16%

51–54g/km: 17%

55–59g/km: 18%

60–64g/km: 19%

65–69g/km: 20%

70–74g/km: 21%

75–79g/km: 21%

80–84g/km: 22%

85–89g/km: 23%

90–94g/km: 24%

Above 94g/km: the percentage increases by 1% for every additional 5 g/km, up to a maximum of 37%.

Worked example

David is provided with a new company car, a Hyundai Ioniq, on 6 April 2026. It has a list price of £28,395, CO2 emissions of 26 g/km, and an electric range of 39miles.

Based on the bands above, this places David's car in the 14% category. His Benefit in Kind (BiK) for 2026/27 is therefore:

£28,395 × 14% = £3,975.30

Cost to employee

An employee’s tax charge is worked out by taking the taxable benefit figure (Bik) and applying the employees tax rate to this. (i.e. 20, 40, 45%)

Cost to employer

The taxable benefit figure is also used to work out the employer's Class 1A National Insurance liability, charged at 15% for 2026/27.

Diesel cars

A 4% supplement is added to the list price percentage for most diesel cars, unless the vehicle was registered on or after 1 September 2017 and meets the Euro 6d emissions standard. As with all company cars, the maximum charge is capped at 37%.

The diesel supplement does not apply to hybrid vehicles.

Example: A diesel car whose CO2 emissions would normally place it in the 22% band is instead taxed at 26% for 2026/27,once the supplement is applied.

Company Car Availability

You’re only taxed on the period of time where the car is available to you. For situations like mechanical fault or repair, the car is treated as unavailable if this is for a period of more than 30 consecutive days.

Where a car has been unavailable, the taxable value is reduced on a pro-rata basis to reflect the number of days it was actually available to the employee.

Finding a car's emissions figures

The Vehicle Certification Agency publishes free guidance on the fuel consumption and emissions of new cars, available at www.carfueldata.direct.gov.uk. These published figures aren't always definitive for a specific vehicle - the official CO2 emissions figure for a particular car is the one recorded on its Vehicle Registration Document (V5).

What counts as the "list price"

The list price is the price of the car when first registered, including delivery, VAT, and any accessories fitted at the time. Accessories added later are also included, unless they cost less than £100.

If the employee makes a capital contribution towards the car (up to £5,000), this reduces the list price used for the calculation.

Private fuel for company cars

If an employee is provided with fuel for private mileage in a company car (or is reimbursed for it) an additional tax charge applies. This is known as the fuel scale charge.

The fuel scale charge is worked out by applying the same percentage used for the car benefit to a fixed figure, which is £29,200 for 2026/27 (up from £28,200 in 2025/26). As with the car benefit itself, this figure also feeds into the employer's Class 1A National Insurance liability and the employee’s tax charge.

Because of the combined tax and NIC cost, providing free private fuel is usually only worthwhile if private mileage is high. If private fuel isn't provided for part of the year, the benefit is reduced proportionately - so stopping the provision of free fuel partway through the year will reduce the charge immediately. Be aware though, that if free fuel is reintroduced later in the same tax year, a full year's charge will apply.

Business fuel

There's no tax charge where an employee is reimbursed only for fuel used on business journeys.

HMRC publishes advisory fuel-only mileage rates for employer-provided cars, updated quarterly in March, June, September, and December. Employers can use these rates, or pay less if they prefer. The latest rates are available at www.gov.uk/government/publications/advisory-fuel-rates.

HMRC Company Car Calculator

You can calculate the employee’s tax charge for a company car using HMRC's company car and car fuel benefit calculator: https://www.gov.uk/calculate-tax-on-company-cars

Using an employee's own car for business

Separate tax and NIC-free mileage rates apply where employees use their own vehicle for business journeys:

• Up to 10,000 miles: 55p per mile (45p up to 6 April 2026)
• Over 10,000 miles: 25p per mile

Employers can pay up to these rates without triggering a tax or NIC charge. Payments at this level are known as "mileage allowance payments." If an employer pays less than the statutory rate, or nothing at all, the employee can claim tax relief on the shortfall.

How we can help

We're happy to advise on:

• whether it makes more sense to provide a company car or have the employee use their own car for business mileage;
• whether employee capital contributions would be tax efficient; and
• whether providing private fuel is worthwhile in your circumstances.

Please contact us to discuss how these rules apply to your situation.

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_{This is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.}