A company car is a great perk, but it comes with a specific tax bill known as benefit in kind (BiK). Why does this matter? Because understanding how it’s calculated can reduce the cost of driving a company car and influence which one you choose. This is particularly important in the tax year 2026/2027, with tax rates changing, and the gap between electric vehicles and petrol cars widening.
So, in this guide, we’ll explain how BiK works, what the rates look like now and in the next few years, and how to keep your tax bill down whilst driving a company car you love.
What Is Company Car Tax (BiK)?
How benefit-in-kind works
If you receive something of monetary value in addition to your salary, it’s subject to income tax. So, if your employer provides you with a car, HMRC treats it as a taxable benefit. This is benefit in kind company car tax in a nutshell, and it’s essentially like receiving part of your salary as a car rather than cash.
The size of your tax bill will depend on the value of the car (its P11D value), the percentage rate HMRC assigns it based on its CO2 emissions and fuel type, and your income tax band. A lower-emission car attracts a lower BiK percentage, for example, so the car itself has a big impact on how much tax you pay.
BiK rates are set annually by HMRC and published online. They’re legislated several years in advance, too, which gives drivers and employers reasonable certainty when planning.
Who pays company car tax?
The employee pays income tax on this form of benefit in kind. Your tax code is adjusted so that the BiK is collected through PAYE, so it comes out of your monthly pay cheque rather than arriving as a separate bill.
The employer pays Class 1A National Insurance contributions. These are due on the value of the benefit, at the current rate of 15%. This is a cost to the business, so it’s an important factor in weighing up company car schemes.
How Is Company Car Tax Calculated?
The BiK calculation formula
The formula for calculating company car tax has three steps.
- First, take the P11D value of the car.
- Multiply that by the BiK percentage rate that applies to the car based on its CO2 emissions and fuel type. This gives you the taxable benefit figure.
- Finally, multiply the taxable benefit figure by your income tax rate to find your annual tax bill.
So, it’s a case of: P11D value x BiK % x income tax rate = annual company car tax. But let’s look at a real-life example to see how the maths applies to a standard petrol vehicle.
Imagine you choose a petrol company car with a CO2 band of 110-114g/km and a P11D value of £35,000, putting it in the 28% BiK band:
- Step 1: Multiply the car's P11D value by its BiK rate to find the taxable benefit (£35,000 x 28% = £9,800).
- Step 2: Multiply that taxable benefit by your personal income tax bracket.
For a basic-rate taxpayer in the 20% income tax band, the annual company car tax bill is £1,960 (£9,800 x 20%), or £163 a month collected through PAYE. For a higher-rate taxpayer at 40%, the same car costs £3,920 a year, which is £327 a month. So, the car hasn’t changed, and your income tax rate is the only variable.
To understand how much company car tax you’ll pay on a specific vehicle, use the HMRC car tax calculator, which takes the inputs and produces the exact figure for your situation.
What is P11D value?
The P11D value is the figure HMRC uses as the starting point for the tax calculation. It’s the manufacturer's list price of the car, including VAT, any factory-fitted optional accessories, and the delivery charge. It doesn’t include the first registration fee or Vehicle Excise Duty (VED).
The P11D value is not necessarily what you or your employer paid for the car. So, even if a discount was negotiated, HMRC uses the list price. Optional accessories added after purchase can increase the P11D value and your tax bill, which is worth bearing in mind when choosing a car.
BiK Percentage Rates for 2026/27 by Fuel Type
The table below shows the confirmed BiK percentage rates by fuel type for the current and upcoming tax years. Petrol and diesel rates are shown as representative bands.
| Fuel Type |
CO2 (g/km) |
Electric Range (PHEVs) |
2025/26 |
2026/27 |
2027/28 |
| Fully electric (ZEV) |
0 |
n/a |
3% |
4% |
5% |
| PHEV |
1-50 |
130 miles or more |
3% |
4% |
5% |
| PHEV |
1-50 |
70-129 miles |
6% |
7% |
8% |
| PHEV |
1-50 |
40-69 miles |
9% |
10% |
11% |
| PHEV |
1-50 |
30-39 miles |
13% |
14% |
15% |
| PHEV |
1-50 |
Under 30 miles |
15% |
16% |
17% |
| Petrol / diesel |
51-99 |
n/a |
16-25% |
17-26% |
18-27% |
| Petrol / diesel |
100-114 |
n/a |
26-28% |
27-29% |
28-30% |
| Petrol / diesel |
115-134 |
n/a |
29-32% |
30-33% |
31-34% |
| Petrol / diesel |
135-154 |
n/a |
33-36% |
34-37% |
35-37% |
| Petrol / diesel (maximum rate) |
155 and above |
n/a |
37% |
37% |
37% |
As you can see, electric vehicle (EV) BiK rates are rising, but they remain dramatically lower than petrol and diesel equivalents through to 2030. What’s more, diesel cars that don’t meet the RDE2 (Real Driving Emissions Step 2) standard come with a 4% surcharge on top of their standard BiK rate, but this is capped at the 37% maximum.
For a higher-rate taxpayer in a £35,000 diesel vehicle in the 28% band, this surcharge alone adds £560 a year. And for petrol and diesel drivers at the top end, the 37% maximum rate applies from 155g/km.
Are you ready to find a vehicle that keeps your monthly BiK bill as low as possible? You can explore our electric car range at Richmond Motor Group.
Electric Company Cars and BiK tax Rates in 2026
Why EVs still offer the lowest BiK tax rates
The electric car company car tax has been one of the most compelling reasons to switch to electric vehicles in recent years. And this remains true in 2026/27 despite the gradual rate increases.
Why? Because the EV BiK rate was 2% in both 2022/23 and 2023/24. It rose to 3% in 2025/26 and reaches 4% in 2026/27. Compare that to a petrol car with CO2 emissions of 110g/km, which sits at 28% in 2026/27, and the difference in tax is massive.
Here’s a worked example comparing two cars with the same P11D value of £50,000, one fully electric and one a petrol vehicle at 28% BiK.
| - |
Electric Car (4% BiK) |
Petrol Car (28% BiK) |
| P11D Value |
£50,000 |
£50,000 |
| Taxable Benefit |
£2,000 |
£14,000 |
| Annual Tax (20% Taxpayer) |
£400 |
£2,800 |
| Annual Tax (40% Taxpayer) |
£800 |
£5,600 |
| Monthly Tax (20% Taxpayer) |
£33 |
£233 |
A higher-rate taxpayer choosing an electric car over a petrol equivalent saves £4,800 a year in company car tax on a £50,000 vehicle. Over four years, that’s almost £20,000 in after-tax income retained.
Upcoming company car tax changes 2026 - 2030
The following EV BiK rates are confirmed by HMRC through to 2029/30:
| Tax Year |
EV BiK Rate (0g/km) |
| 2025/26 |
3% |
| 2026/27 |
4% |
| 2027/28 |
5% |
| 2028/29 |
7% |
| 2029/30 |
9% |
So, even in 2030, an EV will attract less than a quarter of the BiK tax of a mid-range petrol car. And drivers beginning a three or four-year lease in 2026 will spend most of that term at 4% and 5%, with the higher rates only applying towards the end of the lease.
For plug-in hybrid drivers, there is one important change coming from April 2028 that’s worth knowing now. From 6 April 2028, HMRC removes the electric-range bands that currently set PHEV BiK rates, and all 1-50g/km cars move to a single rate of 18% in 2028/29, rising to 19% in 2029/30. This represents quite the increase if you’re currently in a longer-range PHEV taxed at 7% or 10%.
It’s worth noting that the November 2025 Budget added a bit of nuance to this news. It was announced that PHEVs registered between 1 January 2025 and 5 April 2028 (that meet HMRC's eligibility conditions) can retain the more favourable, range-based rates until 5 April 2031. This is as long as the arrangement is not renewed or varied after 5 April 2028.
For pure electric vehicles, none of this applies, and the confirmed EV schedule of 7% in 2028/29 and 9% in 2029/30 is unchanged.
Company Car Tax vs Car Allowance
A car allowance is a sum of money paid through your salary to lease a car privately. It’s subject to income tax and National Insurance, just like any other pay. So, if you receive a £6,000 annual car allowance and you’re a basic-rate taxpayer, you’ll take home around £4,800 after tax and NI.
You’ll then need to factor in running a personal vehicle, which usually includes things like leasing costs, insurance, and maintenance. In addition, you will need to find and pay for the vehicle yourself.
To see how personal contract purchase (PCP) or hire purchase agreements affect your take-home pay, comparing various company car finance options can help you calculate your monthly costs.
A company car is taxed differently. You pay income tax on the BiK value, which for an electric car can be as low as 4% of the P11D value. For a 40% taxpayer in a £35,000 electric car, the annual BiK tax would be £560 a year (£35,000 x 4% x 40%). The car, insurance, servicing, and road tax are all covered by the employer.
For an equivalent petrol car at 28% BiK, the same 40% taxpayer pays £3,920 a year in tax (£35,000 x 28% x 40%), and a 20% taxpayer pays £1,960 (£35,000 x 28% x 20%). In this scenario, a well-structured car allowance may be more cost-effective depending on the vehicle chosen.
All in all, the decision depends on the emissions of the car. Electric cars tend to favour the company car route, and higher-emission cars start to push the calculation more in favour of a car allowance.
Salary Sacrifice Schemes Explained
A salary sacrifice scheme is an arrangement between you and your employer. Within which, you give up a portion of your gross salary for a company car as a non-cash benefit. Because the sacrifice reduces your taxable income, you pay less income tax and National Insurance.
The combination of reduced income tax, reduced NI, and a low BiK rate makes salary sacrifice well-suited to EVs. A basic-rate taxpayer sacrificing £500 a month for an EV saves on income tax and NI contributions, then only pays BiK tax on the car's 4% taxable benefit. The net monthly cost is therefore much lower than leasing the same car personally.
The sacrificed salary also reduces the employer's National Insurance liability, which can make a salary sacrifice scheme cost-neutral or financially beneficial.
It’s important to note that salary sacrifice is an employer-led arrangement and requires a formal scheme setup. Speak to your HR team or contact our Richmond Motor Group business and fleet team for guidance on salary sacrifice and how to structure it effectively.
How to Reduce Your Company Car Tax Bill
Here are some quickfire ways to reduce your company car tax bill:
Choose a lower-emission vehicle
Because BiK percentage rates are tied directly to CO2 emissions, a car emitting 100g/km pays roughly half the BiK rate of one emitting 170g/km. Switching to a fully electric car therefore reduces the BiK rate to 4%, which is lower than any petrol or diesel equivalent.
Be careful with optional accessories
Any factory-fitted additions specified at the time of order add to the P11D value and increase the taxable benefit. Accessories fitted after the car leaves the manufacturer may also need to be declared.
So, it’s worth reviewing the options list with this in mind when ordering and sticking to genuinely useful extras if you don’t want to pay more in tax.
Check whether the private fuel benefit is worth paying for
If your employer pays for private fuel in your company car, HMRC calculates a separate fuel benefit charge. For 2026/27, the fixed multiplier is £29,200, and this is applied at your car's BiK percentage rate to produce the taxable benefit. You then pay income tax on that figure at your marginal rate.
For most drivers, the fuel benefit charge costs more in tax than the fuel itself is worth. So, it’s usually worth declining unless you drive a very high private mileage.
Consider the timing of a new company car
Drivers who start a lease on an electric car in 2026/27 lock in at 4% for the first year of their agreement. Over a three-year lease, average rates of approximately 4%, 5%, and 7% apply across successive tax years, which is much lower than petrol equivalents.
To browse new cars or discuss the best options for your tax position, Richmond Motor Group can help. For fleet or business advice on choosing vehicles that minimise the collective BiK burden across a team, explore our company car finance options directly.