Every Company Car Driver Faces a Benefit in Kind Tax Rise This April

• Company car tax bands rise again from 6 April 2026, with the electric car rate moving from 3% to 4% and most petrol and diesel bands stepping up too.
• A driver in a £42,000 petrol car on the 33% band faces a taxable benefit of £13,860, which costs a higher-rate taxpayer £462 a month.
• HMRC has already locked in further rises for 2027/28, 2028/29 and 2029/30, so the bill keeps climbing even for drivers who keep the same car.

The tax year that quietly got more expensive

Nobody sent a letter. There was no press conference. But from 6 April 2026, every company car driver in Britain moved onto a higher Benefit-in-Kind rate than the one they paid the year before, and most will not notice until the deduction on their payslip changes. The rise applies whether the car on the drive is a Tesla, a diesel Transit-based crew van, or a petrol hatchback on a three-year lease.

Benefit-in-Kind tax is what an employee pays for the privilege of having a car provided by their employer and available for private use, including the commute. HMRC treats that car as a form of pay, works out a “taxable benefit” using the car’s list price and its CO2 emissions, and then taxes that benefit at the driver’s income tax rate. The percentage used to calculate the benefit is set out in HMRC’s official tables, known as 480 Appendix 2, and those tables have been rising on a published schedule set out at the last Budget.

What actually changed on 6 April

For the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, the fully electric rate rose from 3% to 4%, according to figures compiled from HMRC’s tables by tax calculator site UKNetPay. Petrol and diesel bands generally move up by similar small steps across the CO2 scale, continuing a run of annual rises that began in 2025/26 and is already locked in for years to come. A diesel car that fails to meet the RDE2 emissions standard still carries a four percentage point supplement on top of its CO2 band, capped at the maximum 37%.

The electric vehicle rate is the clearest marker of how fast this is moving. It sat at 2% for several years to encourage take-up, rose to 3% for 2025/26, and has now reached 4%. HMRC’s published schedule takes it to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30, a trajectory confirmed at a previous Budget that most EV company car drivers signed their lease without fully registering. Petrol and diesel drivers are not spared either: the top rate holds at 37% through 2027/28 before climbing to 38% and then 39% in the two years after that.

What it costs on an ordinary car

The numbers only mean something once they are attached to a real car. Take a £42,000 petrol saloon emitting 138g/km of CO2, which sits on the 33% band for 2026/27. The taxable benefit works out at £13,860. A basic-rate taxpayer pays 20% of that in tax, or £2,772 a year. A higher-rate taxpayer on 40% pays £5,544 a year, which is £462 a month taken straight from their pay before they have driven a single mile.

Electric cars remain far cheaper to run as a company car, even after the rise. A £40,000 EV on the new 4% rate produces a taxable benefit of £1,600. A basic-rate taxpayer pays £320 a year on that, and a higher-rate taxpayer pays £640 a year, or roughly £53 a month. A plug-in hybrid with a 70 to 129-mile electric range sits on 7% for 2026/27, so a £46,000 PHEV produces a £3,220 benefit and costs a higher-rate taxpayer £1,288 a year.

Drivers who also get fuel paid for by their employer face a second charge. The fuel benefit multiplier rose from £28,200 to £29,200 for 2026/27, so a driver on the 33% CO2 band pays tax on a £9,636 fuel benefit, which is £3,854 a year for a higher-rate taxpayer. Anyone who reimburses their employer in full for private fuel avoids this charge entirely, and for many low-mileage private drivers it is cheaper to simply pay for their own fuel and withdraw from the scheme.

Why diesel drivers are paying twice

Diesel company cars registered before the RDE2 real-world emissions standard took hold still carry the four-point supplement, and it is applied on top of whatever the CO2 band already charges. A £35,000 non-RDE2 diesel at 110g/km sits on a 28% base rate, which becomes 32% once the supplement is added. That difference is worth £560 a year to a higher-rate taxpayer compared with an equivalent RDE2-compliant diesel, and it applies every single year the car stays on the fleet, not just once. Fleet managers who ordered diesel before checking RDE2 compliance have, in effect, locked their drivers into a permanent tax penalty.

What a driver can actually do about it

The company car tax rate is fixed by the car, not negotiable by the driver, but there are still choices worth making. Check the tax code HMRC has issued for the current year against the benefit figure on the P11D or payrolled benefit statement; errors in list price or CO2 figures do happen and are simple to query with HMRC once spotted. Anyone choosing a new company car now should run the exact model, including options that add CO2, through HMRC’s own company car tax calculator before signing anything. A few extra grams of CO2 on paper can push a car into a more expensive band for the entire contract, and that extra cost is locked in for every month the lease runs.

For drivers comparing an electric car against a petrol or diesel equivalent, the gap in Benefit-in-Kind tax remains large enough to outweigh most other considerations, even with the EV rate rising every year to 2030. A salary sacrifice EV scheme, where available through an employer, can lower the effective cost further by taking the lease payment from gross pay before tax and National Insurance are calculated. None of this stops the rates rising again next April. It just decides how much of the rise lands on any one driver’s payslip.

Why the rates keep climbing every April

Company car tax bands are not adjusted by accident. HM Treasury sets the schedule years in advance specifically so that the amount raised from company car drivers rises steadily, regardless of which cars employers choose to put on their fleets. The current run of increases was confirmed at a previous Budget and published through HMRC’s 480 Appendix 2 tables well before any of the affected tax years began, which is why a driver signing a three or four-year lease now can already see, in black and white, exactly how much more they will pay in each of the coming years without a single further announcement needed.

That predictability cuts both ways. It means there are no surprise mid-year changes to budget for, but it also means nobody should expect the EV advantage to shrink back to where it is today. A driver choosing a company car in 2026 on the basis of this year’s 4% EV rate is also choosing, for however long they keep that car, to move through 5%, 7% and 9% in the years that follow, while the equivalent diesel or petrol car’s rate barely moves over the same period.

Company car or cash allowance: the comparison worth running

Many employers now offer staff a choice between a company car and a monthly cash allowance added to salary instead, and the rising Benefit-in-Kind bands make that comparison worth running properly rather than guessing. Cash allowances are taxed as ordinary income and also attract National Insurance, so they are not automatically cheaper than a company car, especially for an electric vehicle sitting on the lowest available rate. A driver who would buy an EV anyway, through their own finance or a personal lease, is often still better off taking the company car and its 4% rate than taking the cash and buying the same car privately with fully taxed income.

The calculation flips for drivers who want a petrol or diesel car on the higher bands, where the Benefit-in-Kind charge can outweigh any tax advantage the company car scheme once offered. Running both numbers side by side, using the driver’s actual tax rate and the exact list price and CO2 figure of the car under consideration, takes a few minutes with HMRC’s online calculator and can be worth hundreds of pounds a year either way. Payroll or HR teams can usually provide the comparison directly, and it is worth asking for in writing before any choice is confirmed, as changing the choice again later in the same tax year is rarely simple.

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Sources:

• UKNetPay: Company Car Tax 2026/27: BIK Rates From 4% to 37%