The electric company car in 2026/27: what the benefit in kind really costs, and where it is heading
Most directors still price an electric company car off the old two per cent figure. It is 4 per cent for 2026/27 and reaches 9 per cent by 2029/30, and the 100 per cent first year allowance ends on 31 March 2027. This piece works the arithmetic through a labelled illustrative calculation and flags the mileage mix-up that leaves 48p a mile on the table.
The two per cent everyone remembers has gone
Ask a director what an electric company car costs and a good many will say two per cent. That figure was real: it held for three tax years from April 2022. It has since been overtaken twice. For 2026/27 the appropriate percentage, meaning the slice of the car's list price that becomes taxable income in the director's hands, is 4 per cent for a car with zero CO2 emissions. It rises to 5 per cent in 2027/28, then more sharply to 7 per cent in 2028/29 and 9 per cent in 2029/30, all set out in HMRC's own published rate tables and impact notes rather than forecast. The consequence is hard to undo: the same car, unchanged on the same driveway, generates a benefit charge in 2029/30 more than twice the 2026/27 figure. A decision taken on the two per cent number rests on a foundation that no longer exists.
How the charge is actually built, and who pays what
The mechanics are mercifully simple. Start with the list price, the manufacturer's published price for the car when new, not the invoice you negotiated. Add the price of accessories provided with the car at the outset, and of any accessory added later costing GBP 100 or more. Deduct any capital contribution the director makes towards the car, capped at GBP 5,000 by section 132 of ITEPA 2003. Multiply what remains by the appropriate percentage. The product is the cash equivalent, taxed on the director at their marginal rate. The company then pays Class 1A National Insurance on precisely the same figure, at 15 per cent for 2026/27. Class 1A is an employer-only charge, so there is no employee National Insurance on a company car at all. The calendar is fixed: P11D and P11D(b) are due by 6 July after the tax year ends, and the Class 1A must reach HMRC by 22 July if paid electronically, 19 July by cheque. From 6 April 2027 company cars are among the benefits that must be reported in real time through payroll, so that annual rhythm is about to disappear.
An illustrative calculation on a GBP 45,000 car
The following figures are illustrative, chosen for clarity rather than drawn from any particular case. Take a new fully electric car listed at GBP 45,000 including accessories, provided to a director paying income tax at 40 per cent, in a company paying corporation tax at the 25 per cent main rate. In 2026/27 the benefit is 4 per cent of GBP 45,000, so GBP 1,800. The director's income tax on that is GBP 720, or roughly GBP 60 a month. The company's Class 1A at 15 per cent comes to GBP 270. Roll the same car forward on the published percentages and the benefit becomes GBP 2,250 in 2027/28, GBP 3,150 in 2028/29 and GBP 4,050 in 2029/30, producing income tax of GBP 900, GBP 1,260 and GBP 1,620 in turn. Across those four years the director pays GBP 4,500 in income tax and the company GBP 1,687.50 in Class 1A, before the corporation tax deduction for that National Insurance. Against all of it sits the 100 per cent first year allowance: if the car is new and unused, the company writes off the whole GBP 45,000 against profits immediately, worth GBP 11,250 of corporation tax relief in year one. The relief arrives at once. The benefit charge accumulates and escalates.
The company side, and the deadline that genuinely bites
That first year allowance is the largest single number in the exercise, and it now has an end date. The expenditure must be incurred by 31 March 2027 for corporation tax, or 5 April 2027 for income tax, following the one-year extension legislated in Finance Bill 2025-26. The car must be unused and not second hand, though that test is looser than it sounds: HMRC accepts a car as unused despite limited miles for testing, delivery, a customer test drive or demonstrator use, and pre-registration to a dealer does not by itself spoil it. A car that misses the allowance falls into the main pool, and cars are excluded from the new 40 per cent first year allowance, so the main pool writing down allowance is the only fallback. That rate fell from 18 to 14 per cent on 1 April 2026 for corporation tax and 6 April 2026 for income tax, with a hybrid rate where a chargeable period straddles the change. Cars emitting more than 50g per kilometre go to the special rate pool at 6 per cent. The allowance is a timing advantage rather than a gift: disposal proceeds come back into charge on sale. On VAT, assume input tax on purchase is blocked, because recovery requires that nothing actually prevents private use, which a car kept at the director's home almost never achieves. Leasing is more forgiving, with 50 per cent of the VAT on rentals recoverable where there is private use.
Charging and mileage, where directors most often slip
Electricity is not fuel for benefit purposes, so no fuel benefit charge arises on an electric company car, and charging at a workplace charge point costs the director nothing in tax. Where the company reimburses the cost of charging a company car at home or at a public charger, section 239(2) of ITEPA 2003 means no separate benefit arises, provided the reimbursement relates to that company car. Where instead the director pays for the electricity personally and reclaims business mileage, the advisory electric rate applies, and HMRC now splits it by charging location: from 1 June 2026 it is 7p a mile for home charging and 15p a mile for public charging, reviewed quarterly, with mixed charging apportioned on a fair and reasonable basis. Here is the distinction that catches people out, and it is expensive. Everything above concerns a company-owned car. If the director owns the car personally, the advisory electric rate has no application whatsoever; the approved mileage allowance payment rates apply instead, and these rose to 55p a mile for the first 10,000 business miles from 6 April 2026, 25p thereafter. Reimbursing 7p a mile on a privately owned electric car, which happens more often than it should, throws away 48p a mile of tax-free money. The director can claim mileage allowance relief on the shortfall, but that recovers only tax at the marginal rate, so a higher rate taxpayer gets back around 19p of the 48p and the company saves nothing at all.
Why salary sacrifice still works for electric cars
Salary sacrifice for an electric car is one of the few arrangements the optional remuneration rules leave alone. Those rules, in force since April 2017, normally tax the greater of the salary given up and the cash equivalent, removing most of the point of the exercise. Section 120A(3)(c) of ITEPA 2003 applies them to cars only where the car's CO2 emissions figure exceeds 75 grams per kilometre. A fully electric car emits nothing, so it falls outside the rules and is taxed on the ordinary appropriate percentage alone. For a director with enough salary to sacrifice from, a 4 per cent charge plus relief at the marginal rate on the pay forgone remains genuinely efficient. Do check, before signing, that reducing salary does not disturb pension contributions calculated on pay, mortgage affordability evidence, or any statutory entitlement keyed off earnings.
So is it still worth it, and what to do about it
Compare the routes honestly. To buy a GBP 45,000 car from personal funds, a higher-rate director taking dividends at 35.75 per cent needs roughly GBP 70,000 of dividend, which the company must fund from around GBP 93,400 of pre-tax profit once corporation tax at 25 per cent is paid. Through the company, with the first year allowance available, the car absorbs GBP 45,000 of pre-tax profit, plus about GBP 4,500 of personal tax and GBP 1,690 of Class 1A over the four years illustrated. The gap is wide enough that the rising percentages do not close it. Two things temper that. Electric Vehicle Excise Duty, announced at Budget 2025 and confirmed in the July 2026 consultation response, is due from 1 April 2028 at 3p a mile for battery electric cars, though the primary legislation is still to be introduced. And the arithmetic can reverse for an inexpensive car driven by a basic rate taxpayer, or for a used car attracting no first year allowance. Practically: incur the expenditure before 31 March 2027 and confirm in writing that the car is unused; model the charge at 9 per cent rather than 4, because you will probably still own it; and ask your accountant what a balancing charge on disposal does to the relief, and whether a lease with 50 per cent VAT recovery beats outright purchase. This is general information rather than advice on your particular circumstances.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.