A company car you use privately 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.
Company car tax, formally called Benefit in Kind (BIK) taxation, is how private use of a company car is taxed. HMRC taxes you on the value of a company car to you if you use it privately. The good news is that for electric vehicles, the BIK rates are so low that the tax bill can be remarkably small. The bad news is that for a conventional petrol or diesel car, a higher-rate taxpayer can pay over £5,000 a year in tax on a petrol car in a high band. Our car costs guide can help you weigh that against the full cost of running and financing your own vehicle.
The biggest decision most employees face is whether to take a company car or opt for a cash car allowance instead. The answer has shifted as electric car BIK rates are set far below those for petrol and diesel cars, though they rise each year. For EV drivers, a company car is usually the better financial choice.
How Company Car Tax Works
| Step | Detail |
|---|---|
| 1 | Find the P11D value of the car (list price including delivery charges and accessories, but not the first registration fee or vehicle tax) |
| 2 | Find the BIK percentage based on the car’s CO2 emissions (and, for plug-in hybrids, its electric range) |
| 3 | Calculate the taxable benefit: P11D value × BIK % (before any reductions, for example for part-year use or contributions you make) |
| 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
The government has published BIK rates for electric vehicles several years ahead, up to 2029/30. The electric car rate rises by 1 percentage point a year to 2027/28, then by 2 points a year to 2029/30, and stays well below the rates for petrol and diesel cars. Even by 2027/28 at 5%, an EV’s BIK tax will be well below the rates of up to 37% that higher-emission petrol cars attract.
| 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% | 6% | 7% | 8% |
| 1–50 | 40–69 miles | 8% | 9% | 10% | 11% |
| 1–50 | 30–39 miles | 12% | 13% | 14% | 15% |
| 1–50 | Under 30 miles | 14% | 15% | 16% | 17% |
BIK Rates — Petrol and Diesel
Petrol and diesel BIK rates rose in 2026/27, but not uniformly. For cars below 75g/km CO2, the rate generally rises by 1 percentage point a year, up to a cap of 21%. For cars at 75g/km CO2 and above, HMRC has frozen the rate at its 2025/26 level all the way through to 2027/28, so a car in the 32% band in 2025/26 is still in the 32% band in 2026/27. Lower-emission cars (51–74g/km) still see a 1-point annual rise until they reach the 21% cap, which is where the real annual creep is happening.
Note that BIK percentages are capped at 37% regardless of emissions in the current tax year, and the cap rises to 38% in 2028/29 and 39% in 2029/30. For future planning, the government has also published 2027/28 BIK rates. Most sub-75g/km bands keep rising by 1 point a year (up to a 21% cap), the 75g/km+ freeze continues, and EV rates climb slowly from their current low base.
| CO2 emissions (g/km) | 2025/26 BIK % | 2026/27 BIK % |
|---|---|---|
| 51–54 | 16% | 17% |
| 55–59 | 17% | 18% |
| 60–64 | 18% | 19% |
| 65–69 | 19% | 20% |
| 70–74 | 20% | 21% |
| 75–79 | 21% | 21% |
| 80–84 | 22% | 22% |
| 85–89 | 23% | 23% |
| 90–94 | 24% | 24% |
| 95–99 | 25% | 25% |
| 100–104 | 26% | 26% |
| 105–109 | 27% | 27% |
| 110–114 | 28% | 28% |
| 115–119 | 29% | 29% |
| 120–124 | 30% | 30% |
| 125–129 | 31% | 31% |
| 130–134 | 32% | 32% |
| 135–139 | 33% | 33% |
| 140–144 | 34% | 34% |
| 145–149 | 35% | 35% |
| 150–154 | 36% | 36% |
| 155+ | 37% | 37% |
Rates at 75g/km CO2 and above are frozen at the same percentage in both 2025/26 and 2026/27, the freeze runs through to 2027/28. Only the bands below 75g/km (including the 51–74g/km bands and the EV/PHEV bands above) increase year on year, by 1 percentage point, up to caps of 5% for electric cars and 21% for other ultra-low emission cars.
Diesel supplement: Diesel cars that don’t meet the RDE2 (Euro 6d) standard have 4 percentage points added to the rate (still capped at 37%).
Tax Calculation Examples
The three examples below illustrate how dramatically the choice of car affects your tax bill. All figures assume a 2026/27 tax year calculation.
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) | 33% |
| Taxable benefit | £38,000 × 33% = £12,540 |
| Tax (20% taxpayer) | £12,540 × 20% = £2,508/year (£209/month) |
| Tax (40% taxpayer) | £12,540 × 40% = £5,016/year (£418/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
Some employers offer a cash car allowance as an alternative to a company car. See our full company car vs car allowance guide for a detailed worked comparison. In brief: a car allowance is simply extra cash salary. It is taxed as income and subject to NI, so you keep less than the headline amount. The table below sets out the key differences.
| Factor | Company car | Car allowance |
|---|---|---|
| Tax payable | BIK tax (can be very low for EVs) | Taxed as income (20/40/45% outside Scotland) |
| National Insurance | No employee NIC on BIK | Employee NIC payable on allowance |
| Insurance | Depends on your employer’s scheme | You arrange and pay |
| Maintenance/servicing | Depends on your employer’s scheme | You pay |
| Fuel | Often a fuel card (taxable benefit) or you pay | You pay |
| Choice of car | Set by your employer’s scheme | Your choice |
| Mileage | Business mileage often covered separately | Claim mileage at approved rates (55p/mile for the first 10,000 business miles) |
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 |
| Tax and NIC cost to you | £640/year | £2,520/year |
In this example, the electric company car carries much less tax and National Insurance than the allowance does.
Salary Sacrifice for Electric Vehicles
Electric vehicle salary sacrifice schemes have become one of the most popular employee benefits in recent years, and for good reason: they can reduce the cost of a new EV compared to buying independently. The saving comes from three sources: income tax relief, NI savings (both employee and employer), and the low 4% BIK rate.
| 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 | You pay less NIC on your lower cash pay, and your employer pays less NIC on it, but your employer owes Class 1A NIC on the car benefit |
| Example | Sacrifice £500/month gross → your take-home pay usually falls by less than £500 a month, because tax and NIC on that £500 are saved |
| Risk | A salary sacrifice arrangement must not reduce your cash earnings below the National Minimum Wage |
Salary sacrifice for EVs is particularly powerful for higher-rate taxpayers, who outside Scotland save 40% income tax plus National Insurance on the sacrificed salary, and are taxed on a benefit worth only 4% of the car’s list price (2026/27). Many employers pass their own NIC saving (15%) on to employees as an extra contribution toward the lease cost. See our dedicated EV salary sacrifice guide for step-by-step worked examples.
Company Fuel Benefit
If your employer provides free fuel for private use, HMRC applies a separate fuel benefit charge, and it can cost more than the fuel you actually use privately. The multiplier is a fixed figure (£28,200 in 2025/26, rising to £29,200 in 2026/27) multiplied by the car’s BIK percentage and your tax rate. Whether it pays depends on your private mileage: compare the yearly charge with what you would spend on fuel for private journeys.
| Detail | 2025/26 | 2026/27 |
|---|---|---|
| Fuel benefit charge (multiplier) | £28,200 | £29,200 |
| Tax calculation | £28,200 × BIK % × tax rate | £29,200 × BIK % × tax rate |
| Example: 28% BIK, 40% taxpayer | £28,200 × 28% × 40% = £3,158/year | £29,200 × 28% × 40% = £3,270/year |
Tip: Unless you do significant private mileage, the fuel benefit is often not worth it, so consider opting out and paying for your own fuel. The maths rarely stacks up: a higher-rate taxpayer with a 28% BIK car pays around £3,270/year for the fuel benefit in 2026/27, which buys several thousand miles of private petrol at current prices.
Your P11D
The P11D is the form your employer uses to report the taxable value of most benefits in kind, including your company car, to HMRC. From April 2027 company cars must instead be reported through payroll. See our full P11D guide for a complete breakdown of how benefits are valued and reported.
| 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 | List price and taxable (cash equivalent) value of your car, the cash equivalent of any fuel benefit, and other benefits |
| Impact | HMRC adjusts your tax code to collect the extra tax through PAYE |
Related Guides
- Employee Benefits & Tax UK 2026/27 — Hub
- Company Car vs Car Allowance UK 2026/27 — Which Is Better?
- Company Car Tax (BIK) Rates 2027/28
- P11D Benefits in Kind — How Are Employee Perks Taxed?
- EV Salary Sacrifice UK 2026/27
- Salary Sacrifice Guide UK
- Mileage Allowance Rates UK
- Tax Codes Explained
- Electric Car Costs UK
- Car Costs UK 2026 — Running Costs and Finance Options
- Cost to Run a Car UK 2026
- Self Assessment Tax Return Guide
- Car Finance Guide UK