TTR Barnes

In recent years, the choice of a company car was simple. The tax advantages of Electric Vehicles (EVs) made them the definitive choice for both business owners and employees. However, with realignment of the tax system and associated benefits related to EVs, many are questioning if an EV is still the most financially-efficient option for their needs.

So, is an EV still the most tax-efficient choice for your business?

The short answer is: Yes, for most. Despite the recent changes, the running cost savings and the historically low Benefit-in-Kind (BiK) rates still outweigh the tax advantages of a comparable petrol or diesel (ICE) car.

However, for the first time, this is not a universal rule and the “total cost of ownership” has risen significantly due to new road tax liabilities and higher list prices. The automatic tax savings previously enjoyed by EV owners have been reduced by rising BiK rates, the new AER rate split and potential forthcoming pay per mile Electric Vehicle Excise Duty.

For high-earning directors and fleet managers, the decision now requires a detailed look at these shifting pillars, in particular: Rising BiK, new road tax rules, and the mileage-based future.

The Three Key Pillars of Change in 2026

1. The rising BiK “staircase”

We have now moved into the 4% BiK bracket for the 2026/27 tax year for EV vehicles. While this is still low, the trajectory is fixed: it will hit 5% next year and jump more steeply to reach 9% by 2029/30.

For a £50,000 EV car, a 40% taxpayer has seen their annual tax bill double from £400 in 2024 to £800 in 2026. By 2029, that same car will cost them £1,800 a year in personal tax. It is no longer a negligible cost; it is a line item that needs budgeting.

Despite the increases however, the EV remains the dominant choice for tax efficiency compared to a standard petrol car (typically in a 28–30% BiK band).

Additional Burden of Rising National Insurance

It isn’t just the employee who pays more as the “staircase” rises. Employers pay Class 1A National Insurance Contributions (NICs) on the value of the car benefit.

• Following recent changes, the Class 1A NIC rate is now 15%
• Because NICs are calculated as a percentage of the BiK value, every 1% rise in the BiK rate automatically increases the company’s payroll tax bill
• For a fleet of 10 executive EVs, this “staircase” effect could add thousands to your annual National Insurance liabilities by 2030

Salary Sacrifice: Still the “Hidden Lever” for Maximum Efficiency

One area that continues to significantly enhance the case for EVs is salary sacrifice.

Under a salary sacrifice arrangement, the employee gives up a portion of their gross salary in exchange for the use of a company car. This reduces both Income Tax and Class 1 National Insurance Contributions (NICs) on the sacrificed amount, while the employee is only taxed on the Benefit-in-Kind (BiK) value of the vehicle.

For electric vehicles, this creates a powerful tax advantage:

• The employee saves Income Tax + NIC (typically 28-47%) on the sacrificed salary
• They are only taxed on a low BiK percentage (4% in 2026/27)
• Employers save Class 1 NICs on the sacrificed salary, often outweighing the Class 1A NIC cost on the benefit

Using a typical example:

• An employee sacrificing £10,000 of salary for an EV can reduce their tax and NIC bill by nearly £2,500, while only paying around £300 tax on the benefit
• The same structure applied to a petrol vehicle is far less efficient due to significantly higher BiK rates

2. The £50,000 “Luxury” Threshold

A significant update for this year is the revised VED (Vehicle Excise Duty) Expensive Car Supplement (ECS).

Normally, if a new car has a list price over £40,000, you have to pay an extra “Expensive Car Supplement” (ECS) on your road tax for five years. Because electric vehicles (EVs) are naturally more expensive to build, this was hitting many “average” family EVs.

As of April 1^st 2026, the threshold will be raised to £50,000 (up from £40,000) for zero-emission vehicles.  The threshold will be maintained at its current level of £40,000 for all other car types.

This change officially kicks in on April 1, 2026, but it is retrospective.

If you registered your EV between April 2025 and March 2026, you might have already paid one year of this extra “luxury tax” (roughly £425). When you come to renew your road tax after April 1^st, 2026, if your car cost between £40,000 and £50,000, that extra charge will simply disappear. You will only pay the standard flat rate (currently around £190-£200).

For clients choosing a car right now, a zero-emissions EV with a list price of £49,999 is significantly more cost-effective than a Petrol car at £41,000. The petrol car will trigger the surcharge, but the more expensive EV will not.

3. The New “Advisory Electric Rate” (AER) Split

Effective from March 1^st, 2026, HMRC has adjusted the AER to better reflect the widening gap between domestic and public energy costs. The flat rate used in previous years has been replaced by a two-tier system:

• Home Charging: 7p per mile.
• Public Charging: 15p per mile.

Previously, a universal rate of 7p per mile simplified record-keeping but often left employees out of pocket if they relied on public charging. The new 15p public rate is a fairer reflection of market costs, but it introduces a significant compliance burden for employers:

• Evidence of Location: Businesses must now have a robust system for employees to prove where they charged. HMRC expects clear records such as charging logs or payment receipts to justify the 15p reimbursement
• The “Taxable Profit” Trap: If an employer pays the higher 15p rate for a journey where the car was actually charged at home (costing only 7p), HMRC may view the 8p difference as taxable income. This would trigger unforeseen Income Tax and Class 1A National Insurance liabilities for both parties.
• Apportionment for Complex Journeys: For long business trips powered by a mix of home and public charging, HMRC now requires mileage to be apportioned fairly between the two rates

A Note on Higher Actual Costs

HMRC’s advisory rates are guidelines. If an employee uses ultra-rapid public chargers where the actual cost per mile exceeds 15p, employers can reimburse at a higher rate without tax implications, provided they can produce detailed evidence of the actual cost per mile for that specific vehicle and journey.

Be proactive about AER, now is the time to:

• Review Expense Policies: Update your internal mileage claim forms to include mandatory “charging location” fields
• Audit-Proof Records: Establish a digital “charging log” standard that satisfies HMRC’s requirements for fair and reasonable apportionment
• VAT Recovery: Correctly identify the recoverable VAT portion of these reimbursements based on the split rates.

Looking Ahead: The “Pay-Per-Mile” Risk

While not yet in force, the government’s consultation on Electric Vehicle Excise Duty (eVED) is nearing its conclusion. The proposed 3p-per-mile charge (estimated for 2028) remains the biggest threat to EV efficiency. For a high-mileage sales person doing 20,000 miles a year, this could add an extra £600 annual tax burden.

Case Studies: The 2026 Reality Check

To see how this lands on your balance sheet, let’s look at three common scenarios in today’s market.

Case A: The High-Earning Director

• Vehicle: Luxury Electric SUV (e.g. Audi Q8 e-tron)
• P11D Value: £75,000
• 2026/27 Tax Impact: At 4% BiK, a 45% taxpayer pays £1,350 per year in personal tax
• The Petrol Comparison: An equivalent petrol SUV (at 37% BiK) would cost that same director £12,487 per year
• The Verdict: Even with the new £625 annual road tax, the EV remains a massive tax-saver for directors. However, the gap is narrowing as the 9% BiK target approaches.

Case B: The Employee Seeking Efficiency

• Vehicle: Compact Electric Hatchback (e.g. MG4 or VW ID.3)
• P11D Value: £34,000.
• 2026/27 Tax Impact: At 4% BiK, a 20% taxpayer pays just £272 per year.
• The Verdict: For mid-level employees, the EV remains the gold standard for tax efficiency. The lack of an “Expensive Car Supplement” (since it’s under £50k) keeps the business’s VED costs low at just £200/year.

Case C: The High-Mileage Rural Commuter

• Vehicle: Long-range EV vs. High-efficiency Diesel/Hybrid
• Driving Profile: 25,000+ miles per year, often in rural areas with limited charging
• The Problem: Reliability and the “Time is Money” factor

The Reality Check:

• Infrastructure Costs: For an employee who cannot charge at home (e.g. lives in a flat or a rural area), relying on the public network in 2026 is expensive. Public charging rates have risen to approximately 15p per mile, compared to just 7p for those with home chargers.
• The 2028 Mileage Tax: The biggest “avoid” factor is the looming 3p-per-mile road tax slated for April 2028. For a 25,000-mile driver, that’s a £750 annual bill that hits just as their lease reaches its final year.
• The Verdict: If your employee is spending hours each week waiting at expensive public chargers, the “soft” costs of lost productivity, combined with the higher charging rates and the upcoming mileage tax, could make this an inefficient option. In this specific case, a Plug-in Hybrid (PHEV), which benefits from a temporary “emissions easement” from HMRC, may provide the best balance of tax efficiency and operational reliability.

The Verdict: Move Beyond Guesswork

The business case for EVs is no longer “automatic” in 2026, but for most, it remains incredibly strong, provided you don’t fall into a tax trap. With the £50,000 threshold shift and the rising 9% BiK staircase, the difference between a tax-efficient fleet and a costly one now comes down to precise financial modelling.

Choosing a vehicle today is a three-to-four-year financial commitment. A “good deal” on a lease can quickly be wiped out by an unplanned £625 annual road tax bill or an overlooked Class 1A National Insurance hike for the business.

How We Support Your Transition

As your proactive accounting partners, we don’t just “do the books”- we help you bridge the gap between fleet strategy and tax efficiency. We can support your business by forecast modelling, HMRC-compliant vehicle filing and reporting and advising on which vehicle options work most efficiently for you.

Don’t place your next vehicle order based on yesterday’s tax rules. Contact us today for a review of your options and let’s ensure your company cars are working as hard for your bottom line as they are for your team.

All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article. For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.