Company Car Tax Calculator UK 2025/26

Company Car Tax: BIK Rates & Thresholds 2025/26

Company car tax is charged as a Benefit in Kind (BIK) and calculated using three elements: the car's P11D value, the BIK percentage rate (based on CO2 emissions), and your personal income tax rate. The 2025/26 tax year continues to heavily incentivise electric and ultra-low emission vehicles, with pure EVs attracting just 3% BIK compared to up to 37% for high-emission petrol and diesel cars.

BIK Percentage Rates by CO2 Emissions 2025/26

P11D Value Explained

The P11D value is the car's official list price including VAT, delivery charges, and any factory-fitted optional extras. It does not include the first year's vehicle excise duty (road tax) or the first registration fee. Even if your employer negotiated a fleet discount or the car was bought second-hand, BIK is always based on the original P11D value. If you contribute towards the cost of the car (a capital contribution), up to £5,000 can be deducted from the P11D value. Accessories added after purchase that cost more than £100 are added to the P11D value.

Electric Company Cars: The 3% BIK Advantage

Pure electric vehicles (EVs) with zero CO2 emissions attract the lowest possible BIK rate of just 3% in 2025/26. This makes EVs overwhelmingly the most tax-efficient company car choice. The Government has confirmed BIK rates for EVs will rise only gradually: 4% in 2026/27, 5% in 2027/28, and 7% in 2028/29. Employers also benefit because they pay no Class 1A NI on the exempt portion of charging costs when workplace or home chargers are provided. For employees, a £50,000 electric car costs just £300 per year in tax as a basic rate payer, compared to £3,700 for a petrol car with 37% BIK.

Salary Sacrifice vs Company Car: Which is Better?

Salary sacrifice for company cars has surged in popularity, particularly for EVs. Under a salary sacrifice scheme, you give up a portion of your gross salary in exchange for the car and its running costs. You only pay BIK tax on the higher of the salary sacrificed or the taxable benefit, but since EV BIK is just 3%, the taxable benefit is almost always lower than the salary given up. The employer saves on NI contributions, and often passes some of this saving to the employee through lower monthly costs. Optional Remuneration Arrangements (OpRA) rules apply but specifically exempt ultra-low emission vehicles from the "amount foregone" comparison until April 2028.

Fuel Benefit Charge 2025/26

If your employer provides free fuel for private use, you pay tax on the fuel benefit charge. For 2025/26, the fuel benefit multiplier is £27,800. The tax is calculated as: £27,800 x BIK percentage x your tax rate. For a car with 25% BIK, a higher rate taxpayer would pay: £27,800 x 25% x 40% = £2,780 per year in fuel benefit tax. Unless you do very high private mileage, it is almost always cheaper to pay for private fuel yourself and opt out of the fuel benefit. The charge is applied in full regardless of how little private mileage you actually do.

Worked Examples: Company Car Tax Calculations

Additional Company Car Tax Questions

Company Car Tax: In-Depth Guidance

How Company Car Tax is Collected Through PAYE

Company car tax is typically collected by adjusting your tax code rather than through a separate bill. When your employer reports the car benefit on form P11D (or through voluntary payrolling), HMRC calculates the annual BIK value, divides it across the remaining tax year, and reduces your tax-free allowance accordingly. For example, if your car BIK is £8,000 and you have the standard £12,570 Personal Allowance, HMRC may change your tax code to 457L, meaning you are taxed as if your allowance is only £4,570 (£12,570 minus £8,000). This results in approximately £666.67 per month less in net pay for a higher rate taxpayer. If you receive a company car partway through the year, the BIK is pro-rated: a car provided from 1 July 2025 would attract 9/12 of the full year's BIK. When you return a company car, inform HMRC promptly so your tax code is adjusted, otherwise you will continue overpaying tax.

Optional Remuneration Arrangements (OpRA) and Salary Sacrifice

Since April 2017, Optional Remuneration Arrangements (OpRA) rules have changed how salary sacrifice for company cars is taxed. Under OpRA, the taxable benefit is the higher of the BIK value calculated normally or the amount of salary sacrificed. However, ultra-low emission vehicles (ULEVs) with CO2 emissions of 75 g/km or less are specifically exempted from the OpRA comparison rules. This means for electric and plug-in hybrid cars below 75 g/km, BIK is always based on the normal calculation regardless of how much salary is sacrificed. A typical electric car salary sacrifice scheme works like this: the employee sacrifices £500 per month (£6,000/year) of gross salary, the employer leases the car including insurance, maintenance, and tyres, and the employee is taxed on the BIK value of just 3% of P11D. For a £45,000 electric car, the BIK is only £1,350 per year, while the employee and employer both save NI on the £6,000 salary reduction. This makes salary sacrifice for EVs one of the most tax-efficient employee benefits available in the UK.

Diesel Supplement and RDE2 Testing

Diesel cars face a 4% BIK supplement unless they meet the Real Driving Emissions Step 2 (RDE2) standard. This means a diesel car with CO2 emissions of 120 g/km would normally have a 29% BIK rate, but with the diesel supplement it becomes 33%. The maximum BIK rate remains capped at 37% even with the supplement. RDE2-compliant vehicles are tested under more realistic driving conditions and produce NOx emissions below 0.168 g/km. Most new diesel cars registered from September 2017 onwards meet RDE2, but older models may not. You can check whether a specific car meets RDE2 on the Vehicle Certification Agency website or the vehicle's Certificate of Conformity. Given the additional cost of the diesel supplement, many fleet managers are now steering employees towards petrol hybrids or fully electric alternatives, which offer lower BIK rates without any supplement penalties.

Company Car Tax for Pool Cars and Shared Vehicles

If a company car qualifies as a pool car, no BIK tax is charged to any individual employee. To qualify as a pool car, the vehicle must meet all of the following conditions: it is used by more than one employee, it is not ordinarily used by one employee to the exclusion of others, any private use is incidental to business use, it is not normally kept overnight at or near an employee's home, and it is kept on company premises when not in use. Meeting all these criteria is difficult in practice, and HMRC closely scrutinises pool car claims. If even one condition is not met, the car becomes a company car taxable on whoever uses it most. Many businesses that attempt pool car arrangements fail because the vehicle is regularly taken home by one employee overnight or because one person uses it significantly more than others. Keeping a detailed mileage log for each user is essential to support a pool car designation.

Charging Electric Company Cars: Tax Implications

Charging arrangements for electric company cars have specific tax treatment. If the employer installs a charging point at the employee's home, this is an exempt benefit provided the car has CO2 emissions of 75 g/km or less, meaning no BIK tax is charged on the installation cost, which can range from £800 to £3,500. Electricity used for charging at workplace charge points is also exempt from BIK tax. However, if the employer reimburses the employee for electricity used to charge at home, the reimbursement could be taxable unless the employer has an approved mileage rate arrangement. The Advisory Fuel Rate for electric cars is currently 7p per mile, which employers can pay tax-free for business journeys in company cars. For employees with home chargers on an electricity tariff of approximately 28p per kWh, the cost to fully charge a typical electric car with a 60 kWh battery is around £16.80, providing roughly 200 miles of range, which equates to approximately 8.4p per mile in running costs.

Employer Class 1A NI on Company Cars

Employers must pay Class 1A National Insurance at 15% on the taxable benefit value of every company car they provide. This is a cost in addition to the car lease, insurance, maintenance, and fuel. For a petrol car with a P11D value of £35,000 and 30% BIK rate, the Class 1A NI cost is £35,000 x 30% x 15% = £1,575 per year. For an electric car at 3% BIK, the employer cost drops to just £157.50 per year, a saving of £1,417.50 per car. Across a fleet of 50 vehicles, switching from petrol to electric could save an employer £70,875 annually in Class 1A NI alone, before considering fuel savings and other running cost reductions. Class 1A NI on company cars is reported on form P11D(b) and paid to HMRC by 22 July following the end of the tax year.

When to Consider Giving Up a Company Car

For high-emission vehicles, the annual BIK tax can exceed the cost of running your own car. If you are paying more than £5,000 per year in company car tax, it is worth comparing the total cost of ownership of a private vehicle against the tax cost. Consider the full picture: company car tax, any fuel benefit tax, versus the cost of buying or leasing privately, insurance, maintenance, fuel, and depreciation. Many employers offer a cash allowance alternative that you can use towards a private car. While the allowance is taxed as income, you gain the flexibility to choose a more tax-efficient vehicle or a cheaper car that suits your needs. For employees currently driving high-emission company cars who have the option to switch, moving to an electric company car could save £10,000 or more per year in tax while still enjoying the convenience of employer-provided transport, insurance, and maintenance.