How is company car tax calculated?

Company car tax (Benefit in Kind) is calculated as: P11D value (list price of the car including options) × BIK percentage rate (based on CO2 emissions) × your income tax rate. For example, a car with a P11D value of £35,000, a BIK rate of 28%, and a higher-rate taxpayer: £35,000 × 28% = £9,800 × 40% = £3,920 per year in tax. The BIK percentage ranges from 2% for zero-emission electric vehicles to 37% for the most polluting cars.

What is the BIK rate for electric cars?

The BIK rate for zero-emission electric vehicles is 2% in 2024/25, 3% in 2025/26, 4% in 2026/27, and 5% in 2027/28. This makes electric company cars extremely tax-efficient. On a £40,000 electric car, a 20% taxpayer would pay just £320/year in BIK tax at the 4% rate (2026/27). This is why salary sacrifice schemes for electric vehicles have become very popular.

Is a company car or car allowance better?

It depends on the car and your circumstances. For electric or very low-emission vehicles, a company car is usually much cheaper than a car allowance because the BIK rates are so low. For petrol or diesel cars with higher emissions, a car allowance (which you receive as cash) may be better — but the allowance is taxed as income. You also need to factor in insurance, maintenance, and fuel costs if you take the allowance and buy your own car. Run the numbers for your specific situation.

Does my employer pay tax on my company car too?

Yes — your employer pays Class 1A National Insurance contributions on the BIK value of your company car. The rate is 13.8% (2025/26) of the benefit value. For a car with a BIK value of £9,800, the employer pays £1,352/year in NIC. This is why many employers prefer car allowances — it can be cheaper for them too (though they still pay employer NIC on the allowance).

Company Car Tax (Benefit in Kind) Guide — BIK Rates Explained | PocketWise

A company car is a taxable benefit. Here’s how the tax is calculated, the latest BIK rates, and how to work out whether a company car or car allowance is better for you.

How Company Car Tax Works

Step	Detail
1	Find the P11D value of the car (list price + options, minus first-year registration fee and road tax)
2	Find the BIK percentage based on the car’s CO2 emissions
3	Calculate the taxable benefit: P11D value × BIK %
4	Apply your income tax rate to the taxable benefit
5	That’s your annual company car tax bill

Formula

Annual tax = P11D value × BIK % × Your tax rate

BIK Percentage Rates — Electric and Low Emission

CO2 emissions (g/km)	Electric range	2024/25	2025/26	2026/27	2027/28
0 (pure electric)	N/A	2%	3%	4%	5%
1–50	130+ miles	2%	3%	4%	5%
1–50	70–129 miles	5%	5%	7%	8%
1–50	40–69 miles	8%	8%	10%	11%
1–50	30–39 miles	12%	12%	14%	15%
1–50	Under 30 miles	14%	14%	16%	17%

BIK Rates — Petrol and Diesel

CO2 emissions (g/km)	2025/26 BIK %	2026/27 BIK %
51–54	15%	17%
55–59	16%	18%
60–64	17%	19%
65–69	18%	20%
70–74	19%	21%
75–79	20%	22%
80–84	21%	23%
85–89	22%	24%
90–94	23%	25%
95–99	24%	26%
100–104	25%	27%
105–109	26%	28%
110–114	27%	29%
115–119	28%	30%
120–124	29%	31%
125–129	30%	32%
130–134	31%	33%
135–139	32%	34%
140–144	33%	35%
145–149	34%	36%
150+	37%	37%

Diesel supplement: Most diesel cars that don’t meet RDE2 testing standards have a 4% surcharge added (still capped at 37%).

Tax Calculation Examples

Example 1: Electric Car

Detail	Amount
Car	Tesla Model 3
P11D value	£42,000
CO2 emissions	0 g/km
BIK rate (2026/27)	4%
Taxable benefit	£42,000 × 4% = £1,680
Tax (20% taxpayer)	£1,680 × 20% = £336/year (£28/month)
Tax (40% taxpayer)	£1,680 × 40% = £672/year (£56/month)

Example 2: Petrol Car

Detail	Amount
Car	BMW 3 Series (petrol)
P11D value	£38,000
CO2 emissions	135 g/km
BIK rate (2026/27)	34%
Taxable benefit	£38,000 × 34% = £12,920
Tax (20% taxpayer)	£12,920 × 20% = £2,584/year (£215/month)
Tax (40% taxpayer)	£12,920 × 40% = £5,168/year (£431/month)

Example 3: Plug-in Hybrid

Detail	Amount
Car	BMW 330e (PHEV)
P11D value	£43,000
CO2 emissions	32 g/km
Electric range	60 miles
BIK rate (2026/27)	10%
Taxable benefit	£43,000 × 10% = £4,300
Tax (20% taxpayer)	£4,300 × 20% = £860/year (£72/month)
Tax (40% taxpayer)	£4,300 × 40% = £1,720/year (£143/month)

Company Car vs Car Allowance

Factor	Company car	Car allowance
Tax payable	BIK tax (can be very low for EVs)	Taxed as income (20/40/45%)
National Insurance	No employee NIC on BIK	Employee NIC payable on allowance
Insurance	Usually provided by employer	You arrange and pay
Maintenance/servicing	Usually provided	You pay
Fuel	Often a fuel card (taxable benefit) or you pay	You pay
Choice of car	Limited to company fleet/approved list	Any car you want
Mileage	Business mileage often covered separately	Claim mileage at approved rates (45p/mile first 10,000)

Comparison Example

Element	Company car (EV, £40,000)	£6,000 car allowance
BIK tax (40% taxpayer)	£40,000 × 4% × 40% = £640/year	N/A
Income tax on allowance	N/A	£6,000 × 40% = £2,400/year
Employee NIC on allowance	N/A	£6,000 × 2% = £120/year
Insurance	Employer pays	~£600/year
Servicing	Employer pays	~£500/year
Net cost to you	£640/year	~£3,620/year

For electric vehicles, the company car is dramatically cheaper.

Salary Sacrifice for Electric Vehicles

Feature	Detail
How it works	You give up (sacrifice) part of your gross salary in exchange for an electric company car
Tax saving	You pay BIK at just 4% (2026/27) instead of income tax + NIC on the sacrificed salary
Who benefits	Both you and your employer save on NIC
Example	Sacrifice £500/month gross → car costs you ~£335/month net (after tax/NIC savings)
Risk	If you sacrifice below the NMW threshold, the arrangement may not be permitted

Company Fuel Benefit

If your employer provides free fuel for private use:

Detail	2025/26	2026/27
Fuel benefit charge (multiplier)	£27,800	TBC
Tax calculation	£27,800 × BIK % × tax rate
Example: 28% BIK, 40% taxpayer	£27,800 × 28% × 40% = £3,114/year

Tip: Unless you do significant private mileage, the fuel benefit is often not worth it — consider opting out and paying for your own fuel.

Your P11D

Detail	Information
What it is	A form your employer submits to HMRC listing your benefits in kind
When	By 6 July after the end of the tax year
What it shows	P11D value of your car, BIK percentage, fuel benefit, and other benefits
Impact	HMRC adjusts your tax code to collect the extra tax through PAYE