Company car tax explained

What is Benefit-in-Kind?

A company car you can use privately is a Benefit-in-Kind (BIK) — a perk with a cash value that HMRC taxes like income. You don't pay tax on the car's price; you pay it on a taxable benefit, worked out as the car's value times a percentage set by how clean it is. The greener the car, the smaller the benefit and the less tax you pay.

What is P11D value?

The benefit is based on the P11D value — the car's manufacturer list price including VAT, delivery and any optional extras. Crucially, it's not the discounted price your employer actually paid; a dealer discount doesn't reduce it. A qualifying one-off employee capital contribution is deducted separately, up to £5,000.

How CO₂ sets the rate

For petrol and diesel cars, the appropriate percentage climbs with CO₂ emissions. In 2026/27 it starts at 17% for 51–54 g/km and rises by about 1% for every extra 5 g/km, up to a 37% cap:

Electric and plug-in hybrid cars

Fully electric cars are taxed at just 4% in 2026/27 — the reason an electric company car is so cheap. The electric-car BIK rate rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30, but stays far below most petrol and diesel cars.

Plug-in hybrids (1–50 g/km) are rated by their electric-only range: 4% for 130+ miles, then 7%, 10%, 14% and 16% as the range falls below 30 miles. A longer electric range means lower tax until 2027/28. From 2028/29, 1–50 g/km plug-in hybrids move to 18%, then 19% in 2029/30, regardless of electric range. Some eligible PHEVs first registered from 1 January 2025 and affected by the newer emissions standard may use a deemed CO₂ figure of 1 g/km for company-car tax; use the BIK CO₂ figure supplied by your employer.

The diesel supplement

A 4% supplement is added to a diesel's percentage unless it meets the RDE2 standard, based on certification or recorded NOx emissions. The supplement never takes the rate above the cap. Check the certificate of conformity or ask your employer; do not assume it qualifies based only on registration year.

Private fuel benefit

If your employer also pays for your private fuel, that's a separate Benefit-in-Kind — worth £29,200 × the car's percentage in 2026/27 (electric cars are excluded). On a 30% petrol car that's an £8,760 benefit, around £3,504 a year in tax for a higher-rate payer.

Salary sacrifice company cars

Many electric company cars are offered through salary sacrifice: you give up some gross salary for the car, saving Income Tax and National Insurance on the amount sacrificed, and pay only the (low) Benefit-in-Kind tax. For low-emission cars (75 g/km or less) the normal BIK rules apply. Above 75 g/km, the “optional remuneration” rules mean you're taxed on the higher of the BIK value or the salary you gave up — which removes most of the saving. See the salary sacrifice guide.

Employer Class 1A National Insurance

You only pay Income Tax on a company car. Your employer pays Class 1A National Insurance on the same benefit — 15% in 2026/27 — so the car costs them too. That's why employers often steer towards electric cars, where the benefit (and their NI) is small.