Employees who drive electric company cars will see their monthly tax deductions increase from April 2026 as the Benefit-in-Kind rate for zero-emission vehicles rises from 3% to 4%. The change, confirmed in the Chancellor's Autumn Budget and Spring Statement, represents a 33% increase in the BIK percentage applied to electric company cars, meaning drivers will pay more tax on the personal use benefit of their company vehicle. Despite this increase, electric company cars remain dramatically cheaper to tax than their petrol or diesel equivalents, and the salary sacrifice mathematics still strongly favour electric vehicle adoption for most employees.
The BIK system works by calculating the annual value of the benefit you receive from using a company car for personal journeys. This value is determined by multiplying the vehicle's P11D price — the list price including VAT and delivery charges but excluding the first-year registration fee and road tax — by the applicable BIK percentage. The resulting BIK value is added to your taxable income, and you pay income tax on this amount at your marginal rate. For a higher-rate taxpayer in the 40% bracket, a £2,000 BIK value costs £800 per year in additional tax.
Understanding the BIK Rate Change
The 1 percentage point increase from 3% to 4% applies specifically to pure electric vehicles with zero tailpipe emissions. The rate applies from the 2026-27 tax year, which begins on 6 April 2026. Plug-in hybrids with CO2 emissions between 1 and 50 grams per kilometre will see their BIK rate increase from 6% to 8%, while hybrids in the 51 to 100g/km band rise from 10% to 12%. The rates for petrol and diesel vehicles continue to range from 16% to 37% depending on CO2 emissions, meaning electric vehicles remain the most favourable option by a significant margin.
Despite the increase, the electric vehicle BIK rate of 4% compares favourably with petrol and diesel alternatives. ABMW X3 xDrive30d emits 158g/km CO2 and carries a BIK rate of 34%, applying a BIK value of £18,360 to a £54,000 vehicle. The equivalent electric BMW iX3 at the same price carries a BIK value of just £2,160 at the 4% rate, representing an annual BIK tax saving of £6,480 for a 40% taxpayer. Even after the increase, the financial advantage of choosing electric is overwhelming.
How the Change Affects Your Payslip
The practical impact on your monthly payslip depends on your vehicle's P11D value and your income tax bracket. Consider an employee provided with a Tesla Model Y at approximately £50,000 P11D value. At the new 4% BIK rate, the annual BIK value is £2,000. A 40% taxpayer pays £800 per year or approximately £67 per month in additional tax as a result of the company car benefit. This is a modest increase compared to the previous rate, where the same employee would have paid £600 per year or £50 per month.
For a 45% additional-rate taxpayer, the same Tesla Model Y would cost £900 per year or £75 per month in BIK tax at the new rate, compared to £675 per year or £56 per month at the previous 3% rate. The monthly increase of around £19 is unlikely to deter most company car drivers, particularly when compared to the cost of running an equivalent privately-purchased vehicle. The key message is that the BIK rate increase represents a modest adjustment to an already favourable tax position for electric company car drivers.
Salary Sacrifice Schemes and Their Continued Appeal
Electric vehicle salary sacrifice schemes have become one of the most popular employee benefits in the United Kingdom, and the BIK rate increase does not fundamentally change their economics. Under a salary sacrifice arrangement, employees exchange a portion of their salary for the use of a company car, reducing their taxable income and often resulting in significant net savings despite the BIK charge. The employer's National Insurance savings from the reduced salary also typically fund a contribution to the vehicle's cost, making these arrangements financially viable for both parties.
The optimal strategy for employees currently in high-emission company cars is to switch to an electric vehicle as soon as their lease agreement allows. The combination of a lower BIK rate, reduced fuel costs, lower maintenance expenses, and the employer contribution under a salary sacrifice scheme typically results in a net cost saving compared to continuing with a high-emission vehicle. The BIK rate increase from 3% to 4% slightly reduces this advantage but does not eliminate it for most drivers.
Future BIK Rate Projections
The Treasury has indicated that electric vehicle BIK rates will continue to increase in future years as the government phases in higher rates for zero-emission vehicles. Current projections suggest a target rate of 21% for electric vehicles by 2030, which would significantly narrow the gap between electric and petrol company car tax. However, this target remains distant, and the current trajectory of increases — from 2% in 2023 to 3% in 2024, 3% in 2025, and 4% in 2026 — has been gradual enough that the financial advantage of electric company cars has been maintained throughout.
For employees considering a company car choice in 2026, the message is clear: electric remains substantially cheaper than petrol or diesel across every BIK calculation. The modest increase from 3% to 4% should be viewed in context rather than isolation. The overall cost of an electric company car, including BIK tax, fuel savings, and maintenance advantages, continues to represent exceptional value compared to any alternative.
For the official HMRC BIK rates and guidance, visit gov.uk/company-car-tax.
Disclaimer: BIK rates are set by HMRC and are subject to annual review. Always verify current rates and consult a qualified tax adviser before making decisions about company car arrangements.