The company car is making something of a comeback, driven largely by the tax advantages available for electric and lower emission vehicles.
The number of directors and employees with company cars fell by around 240,000 between 2015/16 and 2020/21. Since then, the trend has reversed, with HMRC's latest figures showing 920,000 people had a company car in 2024/25.
What has changed is not simply the popularity of company cars, but the type of vehicles people are choosing.
Fully electric vehicles were still relatively unusual as company cars before 2020/21. By 2024/25, they accounted for just over half of all company cars.
Include low emission hybrids producing between 1 and 50g/km of CO2 and the figure rises to around three-quarters of the company car market.
Tax has undoubtedly played an important part in that shift.
Company cars are taxed as a Benefit in Kind, with the taxable value determined partly by the vehicle's CO2 emissions. For 2026/27, a fully electric company car has a Benefit in Kind rate of just 4%.
That can result in a surprisingly modest personal tax bill, even for an expensive vehicle.
For example, the annual tax cost for a higher rate taxpayer with a company-provided Tesla Model Y Performance is around £990, despite the vehicle costing more than £60,000.
The favourable treatment of electric company cars can extend beyond the vehicle itself.
There is generally no taxable Benefit in Kind where an employer provides charging facilities for an electric company car at the workplace or installs a charging point at an employee's home.
For businesses considering electric vehicles as part of their remuneration package, the combination of the vehicle and charging arrangements can therefore make them attractive to both employer and employee.
For many business owners, the tax benefits are not limited to the low Benefit in Kind charge.
Businesses purchasing new and unused fully electric cars can currently claim 100% first-year capital allowances, meaning the full qualifying cost of the vehicle can be deducted when calculating taxable profits in the year of purchase.
For a limited company paying Corporation Tax, this can significantly reduce the after-tax cost of acquiring an electric company car and can be an important consideration when comparing a company-owned vehicle with a personally funded alternative.
The position is different for second-hand electric cars and hybrids, so the overall tax treatment should be considered before deciding which vehicle and method of purchase is most appropriate.
Low emission hybrids can still offer tax advantages compared with traditional petrol or diesel company cars, although their Benefit in Kind rates are generally higher than those for fully electric vehicles.
For 2026/27, the Benefit in Kind rate for a low emission hybrid will typically fall between 10% and 16%, depending on its emissions and electric range.
A Toyota Prius plug-in hybrid costing around £38,000, for example, could result in an annual tax cost of just over £1,500 for a higher rate taxpayer.
That can still compare favourably with the tax cost of having a conventional petrol or diesel vehicle of a similar value.
Electric company cars remain particularly tax efficient, but anyone choosing a vehicle now should also consider how the position will change during the period they expect to have it.
The Benefit in Kind rate for fully electric cars is scheduled to increase from 4% in 2026/27 to 9% by 2029/30.
As the rates increase, so will the employee's tax bill and the employer's associated National Insurance cost.
The same £60,000-plus Tesla that currently produces an annual tax bill of around £990 for a higher rate taxpayer could result in a tax cost of more than £3,300 by 2029/30. The tax cost of the Toyota Prius example could also increase to around £2,870.
The resurgence of the company car demonstrates just how much tax policy can influence both employee benefits and buying decisions.
For directors and employees, an electric company car can still offer a very tax-efficient way to drive a higher-value vehicle. For limited companies, the ability to claim 100% first-year capital allowances on qualifying new electric cars can make the overall tax position more attractive still.
However, the headline Benefit in Kind rate should not be considered in isolation.
Vehicle cost, how the car is purchased, available Corporation Tax relief, expected ownership period, future Benefit in Kind increases and the tax position for both the company and individual all need to be taken into account. Comparing the figures before choosing a vehicle can help establish whether a company car genuinely represents good value.
You can calculate the potential tax cost of a company car using HMRC's company car and car fuel benefit calculator here:
HMRC company car and car fuel benefit calculator
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
