Company car tax explained

Company car tax: Your complete guide to BiK rates and what’s changing

TL;DR: What is company car tax?

Company car tax – officially called Benefit-in-Kind (BiK) tax – is charged when an employer provides a car that’s available for personal use.

The amount you pay depends on the car’s P11D value, its CO2 emissions, and your income tax band. Electric vehicles attract the lowest rates by a significant margin, and choosing the right car can make a substantial difference to your annual bill.

If your employer offers you a company car, it’s one of the better perks going.

But it does come with a tax bill attached. And understanding how that’s calculated can make a real difference to the vehicle you choose.

Company car tax, officially known as Benefit-in-Kind (BiK) tax, is charged because a company car is considered a taxable perk by HMRC. The amount you pay depends on a car’s value, its CO2 emissions, and your income tax band.

Get the combination right and you could pay very little. Get it wrong and it starts to add up.

This guide covers everything you need to know: what company car tax is, how to calculate it, the current BiK rates through to 2029/30, and how choosing an electric or hybrid vehicle could significantly reduce what you pay – including the changes coming into effect in April 2026.

What do the key company car tax terms mean?

Before we get into the numbers, it’s worth getting to grips with a few terms you’ll come across regularly.

P11D value: The official list price of the car, including VAT, optional extras and delivery charges, but excluding road tax and registration fees. This is the figure HMRC uses as the starting point for calculating your tax.

Benefit-in-Kind (BiK): A taxable perk provided by your employer on top of your salary. A company car is classed as a Benefit-in-Kind because it’s available for personal use, not just business travel. That personal use is what triggers the tax.

BiK rate: A percentage applied to your car’s P11D value to determine how much of it is taxable. BiK rates are set by the government and vary based on the car’s CO2 emissions – and, for plug-in hybrid vehicles (PHEV), its electric-only range. The lower the emissions, the lower the rate.

BiK value: The taxable amount itself, calculated by multiplying the P11D value by the BiK rate. This is then multiplied by your income tax rate to arrive at your actual annual tax bill.

How is company car tax calculated?

Your company car tax bill comes down to four things: the car’s P11D value, its CO2 emissions, the BiK rate those emissions attract, and your personal income tax band.

Work through them in that order, and you should arrive at your annual figure.

Here’s how it works in practice:

1. Find the P11D value: This is the car’s official list price, including extras and delivery.
2. Identify the BiK rate: The BiK rate is determined by the car’s CO2 emissions, and by its electric range (if it’s a PHEV). You’ll find the full rate table in the next section.
3. Calculate the BiK value: Multiply the P11D value by the BiK rate. This gives you the taxable value of the benefit.
4. Apply your income tax rate: Multiply the BiK value by your income tax rate – typically 20% or 40% in England and Wales – to get your annual tax bill. This is collected through your payroll.

For example:

Say you drive an electric company car with a P11D value of £45,000. In 2025/26, the BiK rate for a zero-emission vehicle is 3%.

• BiK value: £45,000 x 3% = £1,350
• Annual tax (20% taxpayer): £1,350 x 20% = £270 per year
• Annual tax (40% taxpayer): £1,350 x 40% = £540 per year

Compare that to a petrol car with the same P11D value and CO2 emissions of 120g/km, which attracts a 30% BiK rate:

• BiK value: £45,000 x 30% = £13,500
• Annual tax (20% taxpayer): £13,500 x 20% = £2,700 per year
• Annual tax (40% taxpayer): £13,500 x 40% = £5,400 per year

The difference is significant – and it’s why the vehicle you choose matters as much as the deal you get on it.

Current company car tax rates

Benefit-in-Kind rates are set by the government and published in advance, so you can plan. The table below covers the current rates through to 2029/30.

A few things worth noting.

Electric vehicles (0g/km) will see their BiK rate increase by one percentage point per year through to 2027/28, then by two percentage points in each of the following two years, landing at 9% by 2029/30.

Plug-in hybrids (1-50g/km) are currently banded by electric range, but from April 2028 that changes – they’ll move into a single 18% band regardless of range, rising to 19% in 2029/30.

How to reduce your company car tax

Can I reduce my company car tax?

Yes – though the key is to be strategic before you sign, not after.

Once you’re locked into a lease agreement, the variables are largely fixed. But at the point of choosing a vehicle, there’s a lot you can do.

Choose a lower-emission vehicle

This is the single biggest lever.

The lower a car’s CO2 emissions, the lower its BiK rate, and the less tax you’ll pay.

Electric vehicles attract the lowest rates of all, and even a plug-in hybrid with a decent electric range will result in a significantly smaller bill than an equivalent petrol or diesel.

Keep an eye on the P11D value

The higher the list price, the more tax you’ll pay – even if the BiK rate is the same.

Some manufacturers offer trim levels specifically designed with company car drivers in mind, balancing a competitive specification with a lower P11D.

You’ll also want to bear in mind that optional extras push the P11D up, so it’s worth being a little selective with the packages you choose to add. Larger alloy wheels, for example, can increase CO2 output as well as list price.

Check your income tax band

Your tax band is the final multiplier in the calculation, so it directly affects your bill.

This isn’t something you’ll likely be able to engineer, but it’s worth knowing that a pay rise moving you from the 20% to the 40% band will double your company car tax liability overnight.

What’s changing for company car tax in April 2026?

The company car tax landscape is shifting over the next few years, and if you’re coming up to renewal or considering a new vehicle, it’s worth knowing what’s coming.

Electric vehicle BiK rate rising to 4%

From 6 April 2026, the BiK rate for zero-emission vehicles will increase from 3% to 4%.

It’s a modest rise, but worth factoring in if you’re calculating the cost of a new lease starting around that time.

Using the same example as before – an EV with a P11D value of £45,000 – the impact looks like this:

• 2025/26 (3%): £270 per year for a 20% taxpayer / £540 for a 40% taxpayer
• 2026/27 (4%): £360 per year for a 20% taxpayer / £720 for a 40% taxpayer

Electric cars will continue to attract the lowest BiK rates by a considerable margin.

A petrol equivalent at the same list price remains several thousand pounds per year more expensive to run as a company car. And with the BiK rates rising across the board over the next four years, that gap isn’t closing any time soon.

Plug-in hybrid bands changing from April 2028

Currently, plug-in hybrids with CO2 emissions between 1-50g/km are banded by their electric range, rewarding those with a longer zero-emission capability with a lower rate.

From April 2028, that changes.

All PHEVs in this band will move into a single 18% rate regardless of their electric range, rising to 19% in 2029/30.

If you’re currently in a PHEV with a long electric range – or considering one on a four-year contract – this is worth building into your calculations now. Depending on the term of your agreement, you could see your rate jump partway through.

Electric vehicles and road tax

It’s also worth being aware of changes to Vehicle Excise Duty (VED) for electric vehicles – separate from your BiK bill, and included in your lease price, but part of the overall cost picture.

From April 2026, the threshold for the Expensive Car Supplement rises from £40,000 to £50,000 for zero-emission vehicles.

That means EVs priced below £50,000 will avoid the additional £425 per year charge, which is applied for five years on top of the standard rate. Note that it’s the official list price, not any negotiated or discounted figure, that counts.

Looking further ahead, the government has launched a consultation on electric Vehicle Excise Duty (eVED), a mileage-based road tax for electric and plug-in hybrid cars due to come into force in April 2028.

Rather than a flat annual rate, it would charge based on how far you actually drive: 3p per mile for EVs, 1.5p per mile for PHEVs. For context, the average EV driver covering around 8,500 miles a year would pay roughly £255 annually, which is still around half of what a petrol driver pays in fuel duty for the equivalent mileage.

For leasing customers specifically, the practicalities are still being worked out.

As the registered keeper, your leasing company is responsible for the VED (which is why it’s bundled into your lease cost and you can be liable for paying the extra if anything changes). It’s likely that eVED will follow the same principle.

Whether that means an estimated cost built into your monthly payment, or a reconciliation against actual mileage at the end of your term, hasn’t been confirmed.

Ready to find a tax-efficient company car?

Understanding your company car tax liability is half the battle. The other half is finding the right vehicle to keep it as low as possible.

Whether you’re looking for an EV with the lowest BiK rates going, a PHEV that balances range with tax efficiency, or a petrol/diesel that keeps CO2 in check, our business car lease deals are a good place to start.

And, of course, our leasing experts are only ever a phone call away.

Company car tax FAQs: Your questions answered

Do I pay tax on fuel provided by my employer?

Yes. If your employer pays for fuel you use privately (including commuting), you’ll be liable for Fuel Benefit tax on top of your standard company car tax.

This is calculated using a separate government figure and the same BiK rate your car attracts, so it can add up quickly. EVs are exempt from Fuel Benefit tax entirely.

Given the complexity of the calculation, HMRC’s online calculator is the most reliable way to work out your costs.

Does my employer pay anything?

Yes. Employers pay Class 1A National Insurance Contributions (NIC) on the taxable value of any company car they provide – currently at a flat rate of 15%.

The same BiK rates that determine your tax bill apply to your employer’s NIC calculation, which means the incentive to choose lower-emission vehicles works in both directions.

What if I only use the car part-time, or contribute to its cost?

If you only have access to the car for part of the year, or if you make a financial contribution towards it, your taxable BiK value will be reduced proportionally.

Your employer can confirm how this is reflected in your tax code.

Does company car tax affect my National Insurance Contributions as an employee?

No. BiK tax is collected through your income tax via payroll, not through your NIC.

How often do BiK rates change?

The government typically publishes BiK rates several years in advance, giving drivers and businesses time to plan.

Rates are confirmed per financial year and can change annually.