For most of the last twenty years, the advice on company cars was short: don't. The benefit-in-kind charge on a conventional car normally exceeded any saving from having the company own it. Electric vehicles changed that calculation, and although the rates are climbing, the advantage in 2026/27 is still substantial, and still widely unused.
The benefit-in-kind percentage
A company car is taxed on a percentage of its list price, the "appropriate percentage", set by CO2 emissions. For a fully electric car that percentage is:
- 3% for 2025/26
- 4% for 2026/27
- 5% for 2027/28
From there the increases steepen: the percentage rises by two points a year to 7% in 2028/29 and 9% in 2029/30. So the advantage does narrow, but it narrows from an extremely low base, and even 9% compares well with a typical petrol car sitting somewhere between 25% and 37%. A car ordered now on a four-year cycle can be modelled across the whole period with certainty, which is unusual in tax.
What that looks like in money
Take a £50,000 car and a higher-rate taxpayer.
- Electric, 2026/27: 4% of £50,000 = £2,000 taxable benefit. At 40%, that is £800 a year in personal tax.
- Petrol equivalent at 30%: £15,000 taxable benefit. At 40%, that is £6,000 a year.
Same car price, same driver, roughly £5,200 a year of difference. Over a typical replacement cycle that is a serious sum, and it is before the employer side.
The company's position
The employer pays Class 1A National Insurance at 15% on the taxable benefit. On the electric car above that is £300 a year; on the petrol one, £2,250. The company also gets relief for the running costs, and new, unused zero-emission cars have attracted a 100% first-year allowance, full relief against profits in the year of purchase rather than the slow writing-down allowances that apply to most cars. That relief has been extended more than once and carries an end date, so it is worth confirming the position at the point of purchase rather than assuming it.
Salary sacrifice: still effective for EVs
This is the part that surprises people. The "optional remuneration arrangement" rules introduced in 2017 deliberately removed the tax advantage from most salary sacrifice schemes, you are taxed on the greater of the salary given up or the benefit. Ultra-low emission vehicles were carved out.
So an EV salary sacrifice scheme still delivers what salary sacrifice used to deliver everywhere: the employee gives up gross salary, saving income tax and employee National Insurance, and is taxed only on the small benefit-in-kind charge. The employer saves 15% Class 1 NIC on the sacrificed salary. It is one of the few genuinely efficient employee benefits left, and it works for staff as well as directors.
Charging and fuel
- No fuel benefit charge for electricity. The punitive car fuel benefit that makes employer-paid petrol so unattractive does not apply to electric charging.
- Workplace charging provided at or near the employer's premises is exempt.
- A charge point installed at the employee's home by the employer is exempt where it relates to a company car.
- Reimbursing home charging for business mileage is handled through HMRC's advisory electric rate.
The honest downsides
It is not free money. The percentage rises every year, so a car kept for five years faces a growing charge. The company owns the asset and carries the depreciation. Cars with a list price over £40,000 attract the expensive-car VED supplement, which now applies to electric vehicles too. And VAT on the purchase of a car is generally irrecoverable unless there is genuinely no private use at all, effectively never for a director's car, though VAT on leasing and on running costs is treated more favourably.
Personal or company?
The rough rule: for an electric vehicle, company ownership usually wins, because the benefit charge is small while the company gets full relief. For petrol and diesel it usually loses, and taking the profit out and buying personally, or claiming 45p and 25p per mile for business use of your own car, comes out ahead. The crossover depends on list price, mileage and your marginal rate.
We run this calculation as part of the wider profit extraction review we do for owner-managed companies, alongside pension, salary and dividend planning, through our tax planning and payroll services. Thinking about a vehicle? Get the numbers modelled first, the decision is much harder to unwind once the car is on the drive.