What is UK Company Car Benefit-in-Kind Tax?
▾
Company car Benefit-in-Kind (BIK) tax is the tax an employee pays when their employer provides them with a car for private use. The taxable value (the BIK) is calculated by multiplying the car's P11D value (broadly the list price including options) by an appropriate percentage derived from HMRC's CO2 emissions table. The employee pays income tax on this BIK value at their marginal rate (20%, 40%, or 45%), and the employer pays Class 1A National Insurance Contributions (NICs) at 13.8% on the same BIK value. For the 2024-25 tax year, electric vehicles (EVs) and zero-emission cars benefit from a 2% appropriate percentage — a very low rate designed to encourage EV adoption. Petrol and hybrid cars range from 13% to 37% depending on CO2 emissions. Diesel cars carry an additional 4% surcharge unless they meet the RDE2 standard. Where the employer also provides fuel for private mileage, there is a separate fuel benefit charge based on a multiplier of £27,800 for 2024-25, multiplied by the same CO2 percentage as the car itself. The fuel benefit is frequently not worth taking if the employer offers reimbursement per mile instead.
DigiCalcs delivers precision-engineered tools for engineers and STEM professionals.
Formula
▾
BIK = P11D value × CO2 appropriate percentage; Employee tax = BIK × income tax rate; Employer NIC = BIK × 13.8%; Fuel BIK = £27,800 × CO2 percentageVariable Legend
▾
| Symbol | Name | Unit | Description |
|---|---|---|---|
| BIK | Benefit in Kind value | £ | P11D × AP — the taxable value of the car benefit |
How to UK Company Car Benefit-in-Kind Tax
▾
- 1Find the car's P11D value — the manufacturer's list price including VAT and all factory-fitted accessories, but excluding the first-year registration fee and road tax
- 2Look up the appropriate percentage from HMRC's CO2/electric range table based on the car's CO2 emissions in g/km
- 3Calculate BIK: P11D value × appropriate percentage
- 4Calculate employee tax: BIK × income tax rate (20%/40%/45%)
- 5Calculate employer Class 1A NIC: BIK × 13.8%
- 6If employer provides fuel for private use, calculate fuel BIK = £27,800 × CO2 appropriate percentage, then apply income tax and employer NIC to this amount too
- 7Add diesel surcharge of 4% if the vehicle does not meet RDE2 standard (check with manufacturer)
Worked Examples
▾
£45,000 × 2% = £900 BIK. Employee tax: £900 × 40% = £360. Employer NIC: £900 × 13.8% = £124.20.
The 2% appropriate percentage for EVs dramatically reduces BIK tax compared to petrol equivalents, making EVs highly tax-efficient company cars.
£30,000 × 31% = £9,300. Tax: £9,300 × 20% = £1,860. Employer NIC: £9,300 × 13.8% = £1,283.
A mid-range petrol car creates a substantial BIK tax charge. Over 3 years the employee would pay £5,580 in tax compared to just £1,080 for an equivalent EV.
Diesel surcharge of 4% adds 4% to the percentage unless the car meets RDE2 standard.
Diesel cars not meeting the RDE2 emissions test carry a 4% surcharge on the appropriate percentage. This makes many modern diesel cars significantly more expensive from a BIK perspective.
£27,800 × 31% = £8,618. Tax: £8,618 × 40% = £3,447.
Free employer fuel for private mileage is rarely tax-efficient unless you drive extremely high mileages. Most employees are better off paying for their own private fuel.
Real-World Applications
▾
Employees choosing between a company car, electric vehicle, or cash car allowance at salary review, representing an important application area for the Uk Car Benefit Tax in professional and analytical contexts where accurate uk car benefit tax calculations directly support informed decision-making, strategic planning, and performance optimization
Fleet managers calculating the total BIK tax cost of a proposed fleet to inform vehicle policy, representing an important application area for the Uk Car Benefit Tax in professional and analytical contexts where accurate uk car benefit tax calculations directly support informed decision-making, strategic planning, and performance optimization
HR teams advising employees on the tax implications of different vehicles in the company car scheme, representing an important application area for the Uk Car Benefit Tax in professional and analytical contexts where accurate uk car benefit tax calculations directly support informed decision-making, strategic planning, and performance optimization
Company car drivers deciding whether to opt out of the fuel benefit, representing an important application area for the Uk Car Benefit Tax in professional and analytical contexts where accurate uk car benefit tax calculations directly support informed decision-making, strategic planning, and performance optimization
Financial advisers helping clients with multiple options assess the most tax-efficient company car strategy, representing an important application area for the Uk Car Benefit Tax in professional and analytical contexts where accurate uk car benefit tax calculations directly support informed decision-making, strategic planning, and performance optimization
Special Cases
▾
Making Good (Employee Contributions)
{'title': 'Making Good (Employee Contributions)', 'body': 'If the employee makes a capital contribution toward the cost of the car at the outset (up to £5,000 maximum), this reduces the P11D value used for BIK calculation. If the employee pays the employer for private use during the year, this reduces the taxable BIK by the amount paid.'}
Pool Cars
{'title': 'Pool Cars', 'body': "Pool cars are cars kept by the employer for business use by multiple employees, not allocated to any one employee, and not taken home overnight. Pool cars are exempt from BIK taxation provided strict conditions are met. The car must not normally be kept at employees' homes."}
Salary Sacrifice for Electric Vehicles
{'title': 'Salary Sacrifice for Electric Vehicles', 'body': "Salary sacrifice arrangements for EVs are particularly tax-efficient because the low 2% BIK is much cheaper than income tax and NI on the equivalent salary sacrifice amount. HMRC exempts EVs from the 'relevant motoring expenditure' rules that restrict salary sacrifice for high-emission cars."}
Company Car BIK Appropriate Percentages 2024-25 (Selected)
▾
| CO2 (g/km) / Type | Appropriate Percentage |
|---|---|
| 0g/km (electric) | 2% |
| 1-50g/km (electric range 130+ miles) | 2% |
| 1-50g/km (electric range 70-129 miles) | 5% |
| 1-50g/km (electric range 40-69 miles) | 8% |
| 51-75g/km | 17% |
| 76-100g/km | 23% |
| 101-125g/km | 28% |
| 126-150g/km | 33% |
| 151-175g/km | 36% |
| 176g/km+ | 37% |
Frequently Asked Questions
▾
How is UK company car tax calculated?
Benefit in Kind (BIK) tax = Car's P11D Value × BIK Rate × Your Income Tax Rate. The P11D value is the list price including options and delivery but excluding VED (road tax) and first registration fee. BIK rates for 2024/25 depend on CO2 emissions: 2% for fully electric vehicles, rising to 37% for high-emission cars. For a £40,000 petrol car at 30% BIK, a higher-rate taxpayer pays: £40,000 × 30% × 40% = £4,800/year in tax. Electric vehicles are by far the most tax-efficient company car choice.
Is it better to have a company car or take a car allowance?
For electric vehicles, a company car is almost always more tax-efficient — the 2% BIK rate means minimal tax while the employer saves on Class 1A NI compared to a cash allowance. For petrol/diesel cars, a cash allowance is often cheaper because BIK rates of 25-37% create significant personal tax. Run the numbers for your specific situation: compare the annual BIK tax on the company car versus the income tax and NI on a cash allowance minus the cost of running your own car. Also factor in that company cars include maintenance, insurance, and roadside assistance, reducing your personal costs.
Why are electric company cars so tax-efficient?
The UK government set the EV BIK rate at just 2% through 2024/25 (rising to 3% in 2025/26 and 4% in 2026/27) to incentivize electric vehicle adoption. On a £45,000 electric car, a higher-rate taxpayer pays only £45,000 × 2% × 40% = £360/year in BIK tax — compared to roughly £5,400 for an equivalent petrol car at 30% BIK. The employer also benefits: they can claim 100% first-year capital allowance on the purchase price and pay lower Class 1A NI on the smaller BIK amount. This makes salary sacrifice for an EV one of the most tax-efficient employee benefits available.
What constitutes the P11D value for company car tax purposes?
The P11D value represents the car's list price, including VAT, delivery charges, and any optional extras fitted by the manufacturer or dealer before registration. It excludes the first registration fee and the annual Vehicle Excise Duty (road tax). For instance, a vehicle with a £28,000 list price, £1,500 of options, and a £500 delivery charge would have a P11D value of £30,000.
How does the fuel benefit charge apply to company cars?
If an employer provides fuel for private use in a company car, an additional fuel benefit tax is levied. This is calculated by multiplying a fixed advisory fuel charge (set at £27,800 for the 2023/24 tax year) by the car's specific BIK percentage. An employee with a car subject to a 20% BIK rate would therefore face an additional fuel benefit of £5,560 (£27,800 x 20%), on which they pay income tax.
Common Mistakes to Avoid
▾
- !Using the purchase price rather than the manufacturer's list price when calculating P11D value — discounts do not reduce the P11D value
- !Forgetting the diesel surcharge for vehicles that do not meet RDE2 standard
- !Assuming fuel benefit is worthwhile without running the numbers — it often costs more in tax than the fuel is worth
- !Not notifying HMRC when a company car is returned — BIK continues to accrue until HMRC is informed
- !Confusing PHEVs with full EVs when applying the 2% appropriate percentage
- !Forgetting that employer Class 1A NIC is a separate cost to the employer on top of the employee's income tax
Pro Tip
If you have the choice between a company car and a car allowance, calculate the BIK on the car first. For EVs with a 2% BIK, the tax is minimal — a £50,000 EV costs a higher-rate taxpayer only £400/year in tax. For high-emission cars, the car allowance may be significantly more tax-efficient.
Did you know?
The government's drive to push company car drivers toward EVs through the 2% BIK rate is working — fleet sales of EVs have grown dramatically since the incentive was introduced, with fleet registrations consistently outpacing private EV sales. Fleet channels now account for over 60% of all new EV registrations in the UK.
References
Have a question about this calculator? Get a detailed answer.
Get Weekly Math Tips
Join 12,000+ subscribers who get calculator tips every week.