Diesel drivers with company cars are being hit with a 37% Benefit-in-Kind (BiK) tax rate, a charge experts describe as a punishment for those who need to cover long distances. The rate, which applies to the most polluting petrol and diesel vehicles emitting more than 155g/km, was introduced in April under former Chancellor Rachel Reeves and has been maintained by new Chancellor John Healey until the Autumn Budget later this year.
Company Car Tax Rates for 2026-2027
The current BiK rates, which took effect at the start of the 2026-2027 financial year, include a 37% charge for vehicles emitting between 155g/km and 170g/km and above. Lower-emission cars attract lower rates, with fully electric vehicles (0g/km) taxed at just 3%, rising to 4%. The rates are designed to encourage a shift towards greener vehicles, but critics argue they fail to account for the practical needs of high-mileage drivers.
Robert Salter, a director at tax advisory firm Blick Rothenberg, highlighted the disparity. “However, as with most things involving tax, where one group ‘wins’ another ‘loses’ – in this case, employees who need to drive long distances,” he said. “Many sales executives drive 20,000-30,000 business miles per annum as a key part of their job, and employers may still expect these individuals to have a diesel vehicle. Individuals in such roles would rarely be able to benefit from a fully electric vehicle because of the mileage constraints of such vehicles.”
Impact on Company Car Users
According to HMRC data, the number of reported company car benefit recipients rose to 920,000 in the last tax year, of which 51% were fully electric. However, the average taxable value of car benefit has fallen by more than 50% since 2019-2020, from £6,770 to £3,330 in 2024-2025. Despite this, diesel drivers face disproportionately high tax bills due to the 37% rate.
The BiK rate for the most polluting vehicles remains at 37% for emissions between 155-169g/km and for those over 170g/km, with no planned reduction. For vehicles emitting 150-154g/km, the rate is 36%, rising to 37% at the 155g/km threshold. This means a driver with a company car worth £30,000 and emitting 160g/km would pay £11,100 in BiK tax annually (37% of £30,000), compared to just £900 for an electric vehicle at the 3% rate.
Government Stance and Future Outlook
Chancellor John Healey has opted to keep the BiK rates unchanged until the Autumn Budget, expected in November. The Treasury has defended the policy as part of its commitment to net-zero emissions, but critics say it unfairly penalises workers in roles that require substantial driving. The rates for plug-in hybrids and low-emission vehicles are also set to rise slightly in 2026-2027, with further increases scheduled for subsequent years.
The full list of BiK rates for 2026-2027 is as follows:
- 0g/km: 3% (rising to 4%)
- 1-50g/km (more than 130 miles electric range): 3% (rising to 4%)
- 1-50g/km (70-129 miles): 6% (rising to 7%)
- 1-50g/km (40-69 miles): 9% (rising to 10%)
- 1-50g/km (30-39 miles): 13% (rising to 14%)
- 1-50g/km (less than 30 miles): 15% (rising to 16%)
- 51-54g/km: 16% (rising to 17%)
- 55-59g/km: 17% (rising to 18%)
- 60-64g/km: 18% (rising to 19%)
- 65-69g/km: 19% (rising to 20%)
- 70-74g/km: 20% (rising to 21%)
- 75-79g/km: 21%
- 80-84g/km: 22%
- 85-89g/km: 23%
- 90-94g/km: 24%
- 95-99g/km: 25%
- 100-104g/km: 26%
- 105-109g/km: 27%
- 110-114g/km: 28%
- 115-119g/km: 29%
- 120-124g/km: 30%
- 125-129g/km: 31%
- 130-134g/km: 32%
- 135-139g/km: 33%
- 140-144g/km: 34%
- 145-149g/km: 35%
- 150-154g/km: 36%
- 155-159g/km: 37%
- 160-164g/km: 37%
- 165-169g/km: 37%
- Over 170g/km: 37%
Expert Calls for Reform
Salter warned that the current structure discourages businesses from providing necessary vehicles for high-mileage roles. “The government’s focus on electric vehicles is understandable, but it must recognise that not all jobs can be done with limited range. Diesel remains essential for many sales, service, and delivery roles,” he said. He urged the Treasury to consider mileage-based adjustments or a separate rate for high-business-mileage drivers.
With the Autumn Budget approaching, industry bodies are lobbying for changes to balance environmental goals with practical business needs. Until then, diesel drivers face a 37% tax penalty that shows no sign of easing.
