Car Tax

How Much Is Company Car Tax in 2025/26?

If you’re considering a company car, you’re probably asking one key question: how much is company car tax going to cost me? The answer isn’t the same for every driver or business. Your total cost depends on several factors—whether you buy or lease, what type of fuel the car uses, and whether you’re trading as a company or a sole trader.

In this article, we break it down by fuel type and ownership structure, so you’ll know exactly what to expect. You’ll also find out the tax difference if the business covers your fuel or electricity.

Petrol Cars

Buying a Petrol Car

When a limited company buys a petrol car, it can claim capital allowances based on the car’s CO₂ emissions:

• Up to 50g/km CO₂ – claim 18% per year (main rate pool)

• Above 50g/km CO₂ – claim 6% per year (special rate pool)

These deductions reduce taxable profits over time but aren’t instant. If you’re looking to reduce your tax bill quickly, petrol cars won’t deliver the best result.

Leasing a Petrol Car

If your business leases the car instead of buying, lease payments can be deducted as a business expense. However, if emissions exceed 50g/km, only 85% of the lease costs are deductible. HMRC blocks 15% to discourage high-emission cars.

Benefit-in-Kind (BIK) for Petrol

BIK applies when an employee or director uses the car for personal journeys. In 2025/26, a petrol car with 95g/km CO₂ creates a 23% BIK charge. For every additional 5g/km, the rate increases by 1%, up to a maximum of 37%.

To calculate the tax:

• Multiply the car’s list price by the BIK rate.

• Multiply that result by the employee’s tax band (20%, 40%, or 45%).

Fuel Paid by Company

If the company pays for your private petrol, you’ll also face a fuel benefit charge. Multiply the BIK percentage by £769 (the 2025/26 fuel benefit multiplier) to get the taxable value.

Diesel Cars

Buying a Diesel Car

Diesel vehicles follow the same capital allowance rules, but their emissions usually exceed 50g/km. As a result, most diesel cars only qualify for the 6% special rate pool, meaning slower tax relief.

Leasing a Diesel Car

The lease restriction applies here as well—15% of lease costs are disallowed if CO₂ emissions are over 50g/km.

BIK for Diesel Cars

Diesel cars also face a 4% surcharge unless the car is RDE2 compliant. This means even relatively clean diesel cars will likely push you closer to the 37% BIK limit.

Fuel Paid by Company

Diesel fuel creates a higher fuel benefit cost for the employee. The same £769 multiplier applies, but it’s taxed at the diesel-inflated BIK rate.

Hybrid Cars

Buying a Hybrid Car

Plug-in hybrids with CO₂ emissions of 50g/km or less qualify for the 18% capital allowance pool. Hybrids above 50g/km fall into the 6% pool.

Leasing a Hybrid Car

If emissions exceed 50g/km, the business loses 15% of the lease cost for tax deduction purposes.

BIK for Hybrids

Hybrid vehicles with emissions of 1–50g/km are taxed based on their electric-only range:

• 130+ miles: 11%

• 70–129 miles: 12%

• 40–69 miles: 13%

• 30–39 miles: 14%

• Below 30 miles: 15%

These percentages are subject to annual review. The lower the range, the higher the tax.

Fuel Paid by Company

If your hybrid uses petrol or diesel for private trips and the company pays for that fuel, the full fuel benefit charge applies. This adds another cost for the employee.

Electric Cars

Buying an Electric Car

Electric vehicles with zero emissions qualify for a 100% first-year allowance. This means your company deducts the entire purchase price from profits in the first year. This is the most tax-efficient option for buying a car.

Leasing an Electric Car

You can deduct 100% of the lease cost, as there is no CO₂ emission to trigger the 15% block.

BIK for Electric Cars

The Benefit-in-Kind tax rate for electric cars remains low:

• 2024/25: 2%

• 2025/26: 3%

• 2026/27: 4%

• 2027/28: 5%

This makes electric vehicles extremely attractive from a tax point of view. If you ask, how much is company car tax for an EV in 2025, the answer could be as low as a few hundred pounds per year.

Charging Paid by Employer

HMRC does not treat electricity as fuel. If the company pays for charging—whether at home, at the office, or at public stations—there is no fuel benefit charge.

What If the Company Pays for Fuel or Charging?

Electric vehicles clearly win when it comes to fuel cost coverage.

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Sole Traders: Company Car Tax Doesn’t Apply

As a sole trader, you’re not taxed on company car benefits because there is no legal separation between you and your business. You can claim:

• Actual costs (fuel, servicing, insurance, etc.) adjusted for personal use

• Capital allowances (same 18% and 6% pools, or 100% for electric cars)

• Or use the simplified mileage rate: 45p per mile (first 10,000 miles), then 25p

No BIK or fuel benefit applies. You only claim for the business-use portion.

If you ask how much is company car tax for a sole trader, the answer is: it doesn’t apply, but you must keep detailed mileage records to support your claim.

Worked Example: Petrol vs Electric

Scenario:

• List Price: £45,000

• Taxpayer: 40% income tax rate

• Employer pays for fuel or charging

• Private use permitted

Electric Car

• BIK: £45,000 × 3% = £1,350

• Tax: £1,350 × 40% = £540/year

• Fuel benefit: £0

• Total annual cost: £540

Petrol Car (95g/km)

• BIK: £45,000 × 23% = £10,350

• Tax: £10,350 × 40% = £4,140/year

• Fuel benefit: £769 × 23% = £177

• Tax on fuel: £177 × 40% = £70.80

• Total annual cost: £4,210.80

Result:
The petrol car costs £3,670 more per year in personal tax than the electric option.

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Brought to You by eTaxFiling.co.uk

This article on how much is company car tax in 2025/26 is brought to you by eTaxFiling.co.uk, trusted UK tax advisers and accountants. We help individuals, business owners, and contractors make informed, tax-smart decisions when it comes to company vehicles.

For personalised advice on tax planning, car allowances, or Benefit-in-Kind charges, visit eTaxFiling.co.uk or get in touch with one of our specialists today.

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Conclusion

So, how much is company car tax in 2025? If you choose an electric vehicle, it’s significantly lower—both for the employer and the employee. You avoid fuel benefit charges, enjoy 100% capital allowances, and pay only 3% BIK. Petrol and diesel cars still bring heavy tax costs, especially when the business pays for fuel.

Whether you’re running a limited company or a sole trader business, consider the tax savings before signing that lease or purchase agreement. In most cases, electric is the smart move—both financiall