If you drive a company car, you’ve probably heard the term Benefit in Kind (BIK) before. It’s the tax you pay for the perk of having a vehicle provided by your employer. The rate you pay depends on the type of car you drive, how much it costs, and how environmentally friendly it is.
With new BIK rates already confirmed up to April 2028, now’s a good time to look at what’s coming in 2026 and how it might affect company car drivers and fleet operators.
What is Benefit in Kind (BIK)?
BIK is a tax applied to any non-cash benefit you receive from your employer, in this case, the private use of a company vehicle.
The amount of tax you pay depends on:
- The P11D value of the car (its list price including options and VAT)
- The CO₂ emissions of the vehicle
- The type of fuel it uses (petrol, diesel, hybrid, or electric)
- Your income tax band (20%, 40%, or 45%)
Your employer also pays Class 1A National Insurance on the car’s taxable value.
What’s Changing from 2026?
The government confirmed that company car tax rates will continue to rise slightly each year from 2025/26 through to 2027/28, but only by 1% per year for most vehicles.
Here’s what that means in practice:
- Electric cars:
Currently at 2% BIK, increasing to 3% in 2025/26, 4% in 2026/27, and 5% in 2027/28.
Even by 2028, that’s still a fraction of the rate applied to petrol or diesel cars.
- Ultra-low emission hybrids (up to 50g/km CO₂):
Their rates will also increase gradually by 1% per year, depending on electric-only range.
- Petrol and diesel cars:
These already attract higher BIK rates (up to 37%), and will also increase by around 1% per year, capped at 37%.
In short, from April 2026, BIK rates will edge up slightly, but electric and plug-in hybrid vehicles will remain by far the most tax-efficient choice.
Why These Changes Matter
For drivers, even a small percentage change can affect take-home pay, especially for higher-value cars.
For businesses, understanding future BIK rates helps with fleet planning and budgeting. Choosing lower-emission vehicles can reduce both tax and National Insurance costs.
Example: Electric vs Petrol in 2026
Let’s take two similar vehicles with a £40,000 P11D value:
- Electric vehicle (BIK 4% in 2026/27):
£40,000 × 4% = £1,600 taxable benefit
A 20% taxpayer pays just £320 per year (£26.67 per month).
- Petrol vehicle (BIK 30% in 2026/27):
£40,000 × 30% = £12,000 taxable benefit
A 20% taxpayer pays £2,400 per year (£200 per month).
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That’s a big difference and a clear reason why more drivers and fleets are switching to electric.
Planning Ahead
If your company is reviewing its fleet or you’re due to change vehicles soon, it’s worth looking at the 2026–2028 BIK bands now. A small change in vehicle choice could save hundreds of pounds a year in tax.
At Southern Motor Contracts, we help businesses plan vehicle choices with tax efficiency and running costs in mind, whether you’re leasing one car or managing a full fleet.
By Megan Hall