Company car tax UK explained: Rates, calculator & Benefit-in-kind (BiK) 2026

Author:Dom Surlis, Specialist Consultant

Company car tax is a Benefit-in-Kind (BiK) tax charged when an employer provides a vehicle that can be used for private travel, such as commuting, holidays, shopping trips or school runs. HMRC treats the vehicle as a taxable employee benefit alongside perks such as private medical insurance or gym memberships.

The amount of BiK company car tax in the UK is based on four factors:

• 1.
  1.
  P11D value (list price) of the vehicle, including non-standard options, VAT, delivery and inspection costs, but excludes the registration fee and first-year vehicle excise duty.
• 2.
  2.
  CO₂ emissions, which have been based on the tougher new WLTP test cycle since April 2020.
• 3.
  3.
  Electric range for plug-in hybrids with CO2 emissions between 1g/km and 50g/km.
• 4.
  4.
  Your income tax band, usually 20% or 40% in England, Wales and Northern Ireland. Scotland has different bands.

Cars with lower emissions and/or a lower P11D value will have less company car tax to pay.

Formula:

P11D Value × BiK Rate = Taxable Value

Taxable Value × Income Tax Rate = Annual Company Car Tax

This is the basic calculation HMRC uses under company car tax rules.

The answer depends on the car you choose and your tax band.

Example calculation Assume three vehicles with a P11D value of £45,000*:

*Illustrative example based on a vehicle P11D value of £45,000. Actual Benefit-in-Kind rates depend on HMRC company car tax rules, including CO₂ emissions and, where applicable, electric-only range.

For a 40% taxpayer*:

*Assume three vehicles with a P11D value of £45,000 and a taxpayer paying income tax at 40%. Actual Benefit-in-Kind rates depend on HMRC company car tax rules, including CO₂ emissions and, where applicable, electric-only range.

This illustrates why many drivers are switching to electric vehicles. Even with gradual BIK increases, EVs remain substantially cheaper to tax than petrol or diesel alternatives.

If you're asking, "How much company car tax will I pay?", use our handy calculator to work out who much tax you could pay*

*This Car Tax Guide is intended to provide a quick reference to the current tax regulations for drivers of company cars and employers. The content has been provided for informational purposes only, does not constitute tax advice and should not be relied on to cover specific situations or circumstances or as a substitute for professional advice.

Alternatively, follow these steps:

Step 1: Find the P11D value This includes:

• •
  Vehicle list price
• •
  Factory-fitted options
• •
  VAT
• •
  Delivery charges

It excludes:

• •
  Registration fees
• •
  Discounts

Step 2: Identify the BiK percentage Your company car tax band depends on:

• •
  CO₂ emissions
• •
  Electric-only range (where applicable)

Step 3: Calculate the taxable value Multiply the P11D value by the BiK rate.

Step 4: Apply your income tax rate Multiply the taxable value by your income tax rate.

Example

• •
  Vehicle P11D: £40,000
• •
  BIK Rate: 5%
• •
  Taxable Value: £2,000
• •
  Taxpayer rate: 20%
• •
  Annual company car tax: £400
• •
  Monthly company car tax: £33.33

For accurate calculations, drivers should also consider accessories, optional extras and any future BiK rate changes.

Company car tax bands are set by HMRC and linked primarily to vehicle CO₂ emissions.

2026/27 company car tax bands:

The government has confirmed company car tax rates through to 2030, giving businesses and drivers greater certainty when selecting fleet vehicles.

BiK rates directly affect:

• •
  Employee tax bills
• •
  Employer National Insurance costs
• •
  Whole-life vehicle costs
• •
  Fleet sustainability strategies

Lower-emission vehicles typically deliver the greatest savings for both employees and employers.

The government uses benefit in kind car tax to encourage adoption of lower-emission vehicles.

Electric vehicles currently benefit from the lowest BiK company car tax rates, making them one of the most tax-efficient company car options available.

Discover Electric Driving.

HMRC has confirmed the following rates:

Although rates will gradually increase, EVs remain significantly more tax-efficient than comparable petrol or diesel vehicles.

Generally, the lowest company car tax liabilities are found with:

• •
  Battery electric vehicles
• •
  Long-range plug-in hybrids
• •
  Low-CO₂ vehicles

These vehicles typically combine low BiK rates with reduced running costs and lower employer NI contributions.

Several important company car taxation changes have been confirmed:

Electric vehicles EV BiK rates will continue to rise gradually from 4% in 2026/27 to 9% by 2029/30.

Plug-in hybrids From April 2028, electric driving range will no longer determine tax bands for vehicles with emissions between 1-50g/km. These vehicles will move to a single 18% BiIK rate.

High-emission vehicles The highest company car tax band will increase further from 2028/29 onwards, affecting vehicles with emissions above 154g/km.
These updates mean businesses should review fleet and company car policies well ahead of future replacement cycles.

Salary sacrifice schemes are treated under HMRC's Optional Remuneration Arrangement (OpRA) rules.

However, an important exemption remains for vehicles emitting less than 76 g/km CO2, including electric vehicles and most plug in hybrids. This often makes salary sacrifice one of the most tax-efficient ways to access an EV.

Most vans have only incidental private use, so are not considered a benefit in kind. Where the van is used privately as well as for business purposes, it would be subject to a fixed Van Benefit Charge. For the 2026/27 tax year, the flat-rate Van Benefit Charge is £4,170, regardless of the vehicle's CO₂ emissions. If your employer also provides fuel for private use, a separate Van Fuel Benefit Charge of £798 may apply. However, double-cab pickup taxation changed from April 2025, with these vehicles now treated as company cars and taxed according to their CO₂ emissions rather than the van benefit rules.

The answer depends on your circumstances.

A company car may be worth it if:

• •
  You drive high annual mileage
• •
  Your employer covers maintenance and insurance
• •
  You choose an electric vehicle
• •
  You want predictable motoring costs

A car allowance may be better if:

• •
  You already own a vehicle
• •
  You want complete vehicle choice
• •
  You drive relatively few business miles

For many employees, particularly higher-rate taxpayers, company car vs car allowance tax comparisons increasingly favour electric company cars because of their low BiK rates.

Company car tax remains one of the most important factors when choosing a company vehicle. Understanding company car tax bands, BiK rates, and how to use a company car tax calculator can help drivers and fleet managers make informed decisions. While company car tax rates will increase gradually over the coming years, electric vehicles continue to offer the strongest tax advantages, helping both employees and employers reduce costs.

Speak to Ayvens' fleet and consultancy specialists to understand how company car tax, salary sacrifice and vehicle choice could affect your business and drivers.