Company car tax and fuel benefit changes: what to considerWritten on July 9, 2026 by Jake Alexander
Key Points
- Company car tax is based on Benefit-in-Kind (BIK), which depends on a vehicle’s list price, emissions, and fuel type.
- BIK rates have increased over time for higher-emission vehicles, making some company cars less tax-efficient.
- Fuel benefit charges can be significant and may outweigh the convenience of employer-paid fuel.
- Upcoming changes, including EV-related developments from 2028, may affect how businesses plan company car policies.
How are company car tax rates changing?
Company car tax is calculated through the Benefit-in-Kind (BIK) system. The taxable value depends on the car’s list price, CO₂ emissions, fuel type, and, for hybrid vehicles, electric range. If the employee makes any contribution towards the value of the car (up to £5,000), then this will reduce the value of the car for BIK purposes.
In recent years, BIK rates have increased for higher-emission vehicles. Lower-emission and electric vehicles have generally attracted lower BIK percentages, which has influenced how businesses and individuals approach company cars.
For example, fully electric vehicles currently attract a BIK percentage of 4%, compared to petrol, hybrid or diesel vehicles, which have a BIK percentage ranging from 4% up to 37% depending on their electric power range and emissions level. Diesel vehicles that do not meet the Real Driving Emissions Step 2 (RDE2) standard also have an additional 4% charge (capped at 37%). As a result, the difference in tax between low- and high-emission vehicles has become more pronounced.
What is happening to fuel benefit charges?
If a company pays for fuel used for private travel, an additional fuel benefit charge applies.
This is calculated using a fixed multiplier, which is then adjusted based on the vehicle’s emissions. Because of this structure, the resulting tax charge may be high, particularly for higher-emission vehicles. The percentage used is the same as the percentage for the company car BIK.
In many cases, the tax cost of the fuel benefit may outweigh the value of the fuel provided.
What do rising benefit-in-kind rates mean in practice?
As BIK rates increase for higher-emission vehicles, the overall cost of providing a company car could rise for both the individual and the business. This includes:
- Higher personal tax for the employee or director
- Employer National Insurance contributions based on the BIK value
The gap between electric vehicles and traditional petrol or diesel vehicles has widened, which is influencing decision-making around vehicle choice.
How should businesses review company car policies?
Given the way company car tax is structured, it may be worth reviewing whether current policies still align with your objectives. This could include:
- Reviewing the types of vehicles offered
- Considering emissions and how they affect BIK
- Assessing whether fuel benefits are still appropriate
- Looking ahead to future changes, including EV-related developments
From April 2028, electric and plug-in hybrid vehicles will move to a per-mile charging system, which could affect how company car and fuel policies are structured. Given the cost and replacement cycle of company vehicles, this may be relevant when making longer-term decisions.
Why Kirk Rice?
Kirk Rice supports business owners in understanding how company car tax and benefits-in-kind apply to their circumstances.
This includes reviewing the tax implications of vehicle choices, explaining how BIK is calculated, and helping you assess whether a company car remains appropriate for your business.
Contact us for tailored tax planning advice: info@kirkrice.co.uk
This article is intended for general information only and does not constitute tax, financial or legal advice. Tax treatment depends on individual circumstances and may change in the future.
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