The Rachel Reeves BIK tax changes are now affecting company car drivers and employers across the UK.
For the 2026/27 tax year, fully electric company cars are generally subject to a 4% Benefit-in-Kind rate, while petrol, diesel and plug-in hybrid vehicles are taxed according to their CO2 emissions and, where applicable, electric-only range.
Further changes are already scheduled. The zero-emission company car rate will rise to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30, while the tax treatment of some plug-in hybrids and double cab pickups has also changed.
For employees, these rules can affect the amount of Income Tax paid on a company vehicle. Employers must also consider Class 1A National Insurance, payroll administration and the wider cost of operating a company fleet.
Last Updated: 13.07.2026
Current BIK Position at a Glance
| Area | 2026/27 Position |
| Fully electric company cars | 4% BIK |
| Cars emitting 1–50g/km | Generally 4% to 16%, depending on electric range |
| Cars emitting 51g/km or more | Generally 17% to 37%, depending on emissions |
| Diesel supplement | An additional 4 percentage points can apply, subject to the relevant maximum rate |
| Employer Class 1A National Insurance | 15% for 2026/27 |
| Double cab pickups | Most affected vehicles are assessed under car benefit rules for arrangements from 6 April 2025, subject to transitional provisions |
The precise percentage depends on the vehicle and tax year, so employers and drivers should check the official company car tax rates before calculating a tax liability.
What Is Benefit-in-Kind Tax?
Benefit-in-Kind, commonly known as BIK, is the tax treatment applied to certain non-cash benefits provided by an employer.
A company car can create a taxable benefit when it is made available to an employee for private use, including commuting where the relevant rules apply.
For company cars, the taxable benefit is generally influenced by:
- The vehicle’s P11D value, including relevant taxable accessories
- Its official CO2 emissions
- Its electric range where the rules require this
- The applicable BIK percentage for the tax year
- The employee’s marginal Income Tax rate
The employee normally pays Income Tax on the taxable value of the benefit rather than paying the BIK percentage itself as a direct tax charge.
How Is BIK Tax on a Company Car Calculated?
A simplified calculation is:
P11D value × BIK percentage = taxable benefit
The employee’s marginal Income Tax rate is then applied to that taxable benefit.
For example, a company car with a P11D value of £40,000 and a 20% BIK percentage would create a taxable benefit of £8,000.
A 20% taxpayer would pay £1,600 in Income Tax on that benefit over the tax year, while a 40% taxpayer would pay £3,200, assuming no other adjustments.
The employee’s PAYE position can also depend on their tax code. Where HMRC changes PAYE to account for a company car benefit, the adjustment may be reflected in a tax code notice, so employees should check that the vehicle details and estimated benefit are correct.
What Are the Rachel Reeves BIK Tax Changes Now in Force?
The company car tax reforms announced under Chancellor Rachel Reeves are no longer simply future proposals.
Several changes are already in force, while further rate increases have been scheduled through to the 2029/30 tax year.
The main developments include:
- Higher BIK percentages for zero-emission company cars over time
- Continued emissions-based taxation for petrol and diesel cars
- Reduced long-term tax advantages for cars emitting 1–50g/km
- New tax treatment for many double cab pickups from 6 April 2025
- A temporary easement for certain plug-in hybrid electric vehicles
- Higher future maximum company car percentages
The result is a more complex multi-year system in which the tax cost of a company vehicle can change during the period that an employee uses it.
What Are the Electric Car BIK Rates From 2025 to 2030?
Fully electric company cars continue to receive significantly lower BIK percentages than many higher-emission vehicles, although their rates are increasing.
| Tax Year | Zero-Emission Car BIK Rate |
| 2025/26 | 3% |
| 2026/27 | 4% |
| 2027/28 | 5% |
| 2028/29 | 7% |
| 2029/30 | 9% |
For an employee choosing an electric company car in 2026/27, the current 4% rate can still produce a substantially lower taxable benefit than a comparable higher-emission vehicle.
However, drivers should calculate the expected cost across the full period they plan to use the vehicle. A car provided under a multi-year arrangement may be subject to different statutory BIK percentages as each new tax year begins.
How Are Plug-In Hybrid Company Cars Taxed in 2026/27?
For the 2026/27 tax year, cars emitting between 1g/km and 50g/km can have BIK percentages ranging from 4% to 16%, depending on their qualifying electric mileage range.
The current bands include:
- 130 miles or more: 4%
- 70 to 129 miles: 7%
- 40 to 69 miles: 10%
- 30 to 39 miles: 14%
- Less than 30 miles: 16%
The longer-term position changes significantly. For 2028/29, cars in the 1–50g/km emissions category are scheduled to move to an 18% appropriate percentage, rising to 19% in 2029/30.
There is also an important newer development for certain PHEVs affected by updated emissions-testing standards. A temporary PHEV Benefit-in-Kind easement applies retrospectively from 1 January 2025 to 5 April 2028 where the qualifying conditions are met.
Certain qualifying arrangements can continue to receive transitional treatment until the earlier of a relevant variation or renewal, or 5 April 2031.
Employers should therefore avoid applying a single general rule to every plug-in hybrid. The vehicle’s registration date, emissions standard, CO2 figure, electric range and the terms of the arrangement can all be relevant.
What Are the BIK Rules for Petrol and Diesel Company Cars?
Petrol and diesel company cars generally face higher BIK percentages than fully electric vehicles because the tax system continues to link the company car benefit to CO2 emissions.
For 2026/27, the standard company car table begins at 17% for vehicles in the 51–54g/km emissions band and rises progressively to a maximum of 37% for higher-emission vehicles.
This means the previous statement that petrol and diesel rates simply “begin at 25%” should not be used. The correct percentage depends on the vehicle’s official CO2 emissions and the applicable rules for that tax year.
A diesel supplement of four percentage points can also apply to certain diesel cars, although cars meeting the Real Driving Emissions Step 2, or RDE2, standard are exempt from that supplement. The overall percentage remains subject to the applicable statutory maximum.
Businesses should also distinguish BIK taxation from mileage reimbursement. Where employees use company vehicles for qualifying business journeys, the relevant HMRC fuel rates concern fuel reimbursement calculations and should not be confused with the percentage used to calculate the company car taxable benefit.
What Are the Current BIK Rules for Double Cab Pickups?
The Benefit-in-Kind treatment of double cab pickups changed from 6 April 2025.
HMRC now assesses a double cab pickup by considering the construction of the vehicle as a whole and whether it is primarily suited to carrying goods or burden.
HMRC states that most double cab pickups are expected to be classified as cars for company car benefit purposes because many are equally suited to carrying passengers and goods.
This can create a substantially different taxable benefit from the previous van treatment. However, the date on which the employer purchased, leased or ordered the vehicle is important.
Under the HMRC double cab pickup transitional rules, employers that purchased, leased or ordered a qualifying double cab pickup before 6 April 2025 can generally continue relying on the previous treatment until the earliest of:
- The vehicle being disposed of
- The lease expiring
- 5 April 2029
A vehicle acquired under a new arrangement from 6 April 2025 may instead fall within the car benefit rules where its construction does not make it primarily suitable for carrying goods.
Employers should therefore review the individual vehicle and the date and terms of the acquisition or lease rather than assuming every double cab pickup receives identical tax treatment.
Does EV Salary Sacrifice Still Offer a Tax Advantage?
Electric vehicle salary sacrifice can still be attractive because the taxable company car benefit on a zero-emission car is based on a 4% BIK percentage in 2026/27.
However, the actual financial benefit varies between employees and schemes.
Factors can include:
- The employee’s salary and marginal Income Tax rate
- National Insurance implications
- The P11D value of the vehicle
- The salary sacrificed
- Pension and other salary-linked benefits
- Early termination terms
- The BIK percentage applying in future tax years
Employees should therefore compare the full cost of the arrangement rather than assuming that every electric vehicle salary sacrifice scheme produces the same saving.
The scheduled increase in electric-car BIK rates also means that a vehicle can become more expensive from a tax perspective during a multi-year agreement.
Entering a scheme does not generally freeze the statutory BIK percentage at the rate applying in the first year.
How Do the BIK Changes Affect Employers and Employees?
The changes affect employees and employers differently.
Impact on Employees
Employees provided with a company car for private use may see their taxable benefit change as the applicable BIK percentage changes.
The financial effect depends on:
- The vehicle’s P11D value
- Its emissions and fuel type
- The appropriate BIK percentage
- The employee’s Income Tax position
- How long the vehicle is available
A higher BIK percentage increases the taxable value of the company car benefit, which can increase the employee’s Income Tax liability.
Impact on Employers
Employers must consider the tax cost alongside the wider cost of operating a vehicle fleet. For the 2026/27 tax year, the Class 1A National Insurance rate on relevant expenses and benefits is 15%.
This means an increase in the taxable value of company car benefits can also increase the employer’s National Insurance cost. It is one example of how taxation affects a business, particularly where an organisation provides vehicles to a large number of employees.
Employers should also ensure that vehicle details are recorded correctly and that taxable benefits are reported through the appropriate payroll or P11D process.
What Should Fleet Managers and Business Owners Do in 2026?
Businesses should review their company vehicle policies using the rules that apply now rather than relying on decisions made before the April 2025 changes.
Practical steps include:
- Review the BIK percentage for every company vehicle
- Check the expected rate for future tax years before entering a long-term agreement
- Identify any double cab pickups relying on transitional treatment
- Review whether any PHEVs may qualify for the temporary emissions easement
- Calculate the employer Class 1A National Insurance cost
- Give employees clear information about how the taxable benefit is calculated
- Review salary sacrifice arrangements against current and future BIK rates
- Keep records of vehicle acquisition, lease and availability dates
The tax position should also form part of the wider financial decision between car leasing and buying. Cash flow, ownership, depreciation, replacement cycles and tax treatment can all affect the overall cost to a business.
Fleet decisions should therefore be based on the complete cost of providing a vehicle rather than the BIK percentage alone.
Conclusion
The Rachel Reeves BIK tax changes are already affecting company car taxation in 2026/27, with further increases scheduled through to 2029/30.
Fully electric cars continue to receive comparatively low BIK percentages, while petrol, diesel, plug-in hybrid and double cab pickup vehicles require closer assessment under the current rules.
Employees should calculate the likely tax cost across the full period they expect to use a company vehicle. Employers should also review Class 1A National Insurance, transitional arrangements and future BIK rates before making long-term fleet decisions.
FAQs
1. What is the BIK rate for electric cars in 2026/27?
The Benefit-in-Kind rate for a zero-emission company car is 4% in the 2026/27 tax year. It is scheduled to rise to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
2. How is company car BIK tax calculated?
Company car BIK is generally calculated by multiplying the vehicle’s P11D value by its applicable BIK percentage. The employee then pays Income Tax on the resulting taxable benefit according to their tax position.
3. Are plug-in hybrid company cars still tax-efficient?
Some plug-in hybrids can still receive lower BIK rates in 2026/27 depending on their CO2 emissions and electric range. However, cars emitting 1–50g/km are scheduled to move to 18% BIK in 2028/29 and 19% in 2029/30.
4. What is the BIK rate for double cab pickups?
There is no single BIK percentage for all double cab pickups. From 6 April 2025, many are treated as cars for BIK purposes, although qualifying vehicles purchased, leased or ordered earlier may receive transitional treatment until the earliest of disposal, lease expiry or 5 April 2029.
5. Does salary sacrifice freeze the BIK rate on an electric car?
No. Entering an electric vehicle salary sacrifice scheme does not generally freeze the statutory BIK percentage, so the taxable benefit can increase when the applicable rate changes in a later tax year.
6. Do employers pay National Insurance on company car benefits?
Yes. Employers generally pay Class 1A National Insurance on taxable benefits provided to employees, with the rate set at 15% for the 2026/27 tax year.
7. Is there a special BIK easement for plug-in hybrid vehicles?
Yes. A temporary easement applies to certain qualifying PHEVs affected by updated emissions-testing standards, operating retrospectively from 1 January 2025 to 5 April 2028, with transitional treatment potentially continuing for qualifying arrangements.
Editorial Note
This article explains UK company car Benefit-in-Kind rules using current HMRC and GOV.UK guidance. Individual tax outcomes depend on the vehicle, tax year, employee circumstances and applicable Income Tax rate.
The article should be reviewed when HMRC changes company car tax percentages, PHEV rules, double cab pickup guidance or related employer tax requirements. This is informational, not financial or tax advice.
How We Checked?
The article was last checked on 13 July 2026. Current 2026/27 company car percentages were checked against HMRC guidance, while future rates, the PHEV easement and double cab pickup transitional arrangements were checked against official government sources.
Tax calculations in the article are illustrative examples rather than personalised calculations. Vehicle-specific figures should be checked using the relevant P11D value, emissions information and tax rules applying to the individual circumstances.
Official Sources
- HMRC – Company Car Benefit Appropriate Percentages:
https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480-appendix-2 - HMRC – PHEV Benefits-in-Kind Easement:
https://www.gov.uk/government/publications/benefits-in-kind-easement-for-plug-in-hybrid-electric-vehicles - HMRC – Double Cab Pickup BIK Rules:
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim23151 - HMRC – Employer Rates and Thresholds 2026/27:
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027 - GOV.UK – Company Car Tax Rates for 2028 to 2030:
https://www.gov.uk/government/publications/income-tax-company-car-tax-rates-2028-to-2030/taxation-of-company-cars-the-appropriate-percentage-for-tax-years-2028-to-2029-and-2029-to-2030
