Company Car vs Car Allowance Calculator 2025/26
Company Car vs Car Allowance Comparison
BIK Rate Applied-
Annual BIK Charge-
Employee BIK Tax Cost/yr-
Car Allowance (gross, per year)-
Car Allowance After Tax & NI-
Estimated Own-Car Running Cost-
Net Annual Value: Company Car-
Net Annual Value: Car Allowance-
Better Option-
2025/26 BIK Rate Summary by CO₂
| CO₂ (g/km) | Petrol BIK% | Diesel BIK% | £30k car (petrol) |
|---|---|---|---|
| 0 (Electric) | 3% | N/A | £900 |
| 1–50 | 5% | 9% | £1,500 |
| 51–75 | 8% | 12% | £2,400 |
| 101–110 | 16% | 20% | £4,800 |
| 121–130 | 20% | 24% | £6,000 |
| 151–160 | 25% | 29% | £7,500 |
| 171–180 | 29% | 33% | £8,700 |
| 195+ | 37% | 37% | £11,100 |
Company Car vs Allowance: Key Scenarios
Electric car (40% taxpayer): £40k EV at 3% BIK = £480/yr tax. Car allowance of £500/month = ~£2,700/yr net after tax. EV wins by approximately £2,220/yr even before running cost savings.
High-CO2 diesel (40% taxpayer): £35k diesel at 37% BIK = £5,180/yr tax. Car allowance of £500/month = ~£2,700/yr net. Allowance wins by approximately £2,480/yr.
The crossover point for most higher rate taxpayers is approximately 15–18% BIK. Below that, the company car tends to win; above that, the car allowance is usually better.
How to Use This Calculator
1
Enter the car's list price (P11D value)
Use the manufacturer's standard list price including delivery. Do not use the price you actually paid — P11D is always the full list price at first registration.
2
Enter CO2 emissions and fuel type
Find the official WLTP CO2 figure (not the old NEDC figure) on the vehicle's V5C or manufacturer's specification. Select the correct fuel type — diesel cars attract a 4% surcharge on the standard BIK rate.
3
Enter your tax band and car allowance
Select your marginal income tax rate (20%, 40%, or 45%). Enter the monthly car allowance your employer offers. If no allowance is offered, enter zero to see only the company car cost.
4
Enter your expected annual mileage
This affects estimated running costs for your own vehicle under the car allowance option. Higher mileage increases fuel costs; lower mileage reduces them.
5
Review and compare the net values
The calculator shows the true net annual value of each option after tax. The 'better option' result highlights which choice leaves you financially better off, but also consider non-financial factors such as convenience, warranty coverage, and whether you want to own your vehicle.
Frequently Asked Questions
Is a company car or car allowance better?
It depends on the car's BIK rate and your tax band. Electric company cars with 3% BIK are almost always better than a cash allowance for higher rate taxpayers. High-CO2 petrol or diesel company cars with 30–37% BIK rates are usually worse than a cash allowance. The breakeven point is typically around 15–20% BIK — below that, the company car usually wins; above that, the allowance is usually better.
How is company car tax calculated?
Company car tax = P11D value × BIK percentage rate × income tax rate. For example, a petrol car worth £30,000 with 120g/km CO2 (18% BIK in 2025/26): BIK charge = £30,000 × 18% = £5,400. Employee income tax at 20% = £1,080/year. At 40% = £2,160/year. The employer also pays Class 1A NIC at 13.8% on the £5,400 charge = £745.20/year.
What is BIK tax on a company car?
Benefit in kind (BIK) tax is the income tax an employee pays for the personal benefit of having a company car. The tax is calculated on the BIK charge (P11D value × BIK%) as if it were extra salary. It is collected through PAYE by reducing the employee's tax code. The employer is responsible for reporting it on form P11D annually and paying Class 1A NIC on the benefit.
What are the BIK rates for 2025/26?
Key 2025/26 BIK rates: Electric (BEV) = 3%. PHEV with 30–49 mile range = 8%. PHEV with under 30 miles range = 14%. Petrol/diesel cars are banded by CO2: 51–75g/km = 8%; 76–100 = 13%; 101–110 = 16%; 111–130 = 17–20%; 131–150 = 21–24%; 151–170 = 25–28%; 171–195 = 29–33%; over 195 = 37%. Diesel cars add 4% to the petrol rate (capped at 37%). These rates will increase for most cars by 1% per year through 2027/28.
What is the benefit of an electric company car?
An electric company car attracts only 3% BIK in 2025/26. On a £40,000 EV, the BIK charge is £1,200, costing a basic rate employee £240/year and a higher rate employee £480/year. Compare this to a £40,000 petrol car at 25% BIK = £10,000 BIK charge = £2,000 (basic) or £4,000 (higher rate). The employer saves proportionally on Class 1A NIC too. Electric cars are by far the most tax-efficient company car option available.
How much tax do I pay on a £30,000 company car?
It depends on the CO2 emissions and fuel type. For a petrol car with 130g/km CO2 (20% BIK): BIK charge = £6,000; basic rate employee pays £1,200/year; higher rate pays £2,400/year. For the same car as a 50g/km PHEV (5% BIK): BIK charge = £1,500; basic rate pays £300/year; higher rate pays £600/year. For an electric equivalent (3% BIK): BIK charge = £900; basic rate pays £180/year.
Can I choose between a company car and car allowance?
This is entirely up to your employer. Many companies offer a 'cash or car' choice as part of their salary package. If you are offered both, use this calculator to compare the after-tax values. Note that under Optional Remuneration Arrangements (OpRA) rules, HMRC taxes the higher of the cash alternative or the BIK value — so if your car allowance is higher than the BIK, you are taxed on the higher allowance amount.
What is a P11D value?
The P11D value (or list price) of a company car is the manufacturer's list price at the time the car was first registered, including standard accessories and delivery charges but excluding the first registration fee and any road tax. It does not reduce even if the car was bought at a discount. For cars registered before 6 April 2020, the P11D includes any capital contributions the employee made at the start.
How does car allowance work?
A car allowance is cash paid by the employer in lieu of a company car. It is added to salary and taxed as income through PAYE, along with employee and employer National Insurance. The employee then buys or leases their own car and is responsible for all running costs. They can also claim HMRC mileage rates (45p for the first 10,000 business miles, 25p thereafter) to recover fuel and running costs for business journeys.
Does car allowance affect my mortgage?
A car allowance is treated as regular income by most mortgage lenders and is typically included in affordability calculations. Some lenders require 3–6 months of payslips showing the allowance consistently paid. In contrast, BIK tax reduces your net take-home pay but doesn't directly appear as income — it simply reduces your cash in hand. When applying for a mortgage, a car allowance may actually show higher gross income than the equivalent company car arrangement.
What is the Optional Remuneration Arrangements (OpRA) rule?
OpRA rules (in effect since April 2017) prevent employees from reducing their BIK tax by choosing a company car instead of a cash alternative. Where an employee has a choice between a car and cash, HMRC taxes the greater of: the cash alternative, or the normal BIK charge. This means that if your employer offers £10,000 cash or a company car with a £5,000 BIK charge, you are taxed on £10,000, not £5,000. The rule does not apply to ultra-low emission cars (under 75g/km CO2).
Is a car allowance pensionable?
A car allowance is usually treated as pensionable earnings if it is a regular contractual payment — meaning both employer and employee pension contributions are calculated on it (under auto-enrolment rules). This can be an advantage for pension saving. A company car BIK does not count as pensionable earnings. Therefore, taking a car allowance rather than a company car can modestly increase pension contributions, which over time compounds into a meaningful difference.