Company Car Tax (Benefit in Kind) 2025-26: How Much Will You Pay?
If your employer provides you with a company car, HMRC treats it as a taxable benefit in kind (BIK). The amount added to your taxable income is based on the car's list price and its CO2 emissions — which is why the tax treatment of electric vehicles is dramatically more favourable than petrol or diesel cars.
How Benefit in Kind tax is calculated
The taxable benefit is calculated as:
P11D value × BIK percentage = taxable benefit
The P11D value is broadly the car's manufacturer's list price including extras and delivery charges, minus any capital contribution you make (up to £5,000). The BIK percentage is set by HMRC and depends on the car's CO2 emissions and fuel type.
Your income tax bill on the car is then:
Taxable benefit × your income tax rate (20%, 40%, or 45%)
BIK percentage rates 2025-26
| Vehicle type | BIK % (2025-26) |
|---|---|
| Zero-emission (EV) | 3% |
| 1–50g CO2/km (PHEV, long electric range) | 5%–14% depending on electric range |
| 51–75g CO2/km | 15% |
| 76–94g CO2/km | 16% |
| 95–99g CO2/km | 17% |
| 100–104g CO2/km | 18% |
| 120–124g CO2/km | 29% |
| 160g+ CO2/km | 37% |
Example: petrol car vs electric car
Both cars have a P11D value of £30,000. The driver is a Basic Rate (20%) taxpayer.
| Petrol (120g CO2) | Electric (EV) | |
|---|---|---|
| P11D value | £30,000 | £30,000 |
| BIK % | 29% | 3% |
| Taxable benefit | £8,700 | £900 |
| Tax at 20% | £1,740/year | £180/year |
| Tax at 40% | £3,480/year | £360/year |
Fuel benefit charge
If your employer also pays for your private fuel, there is an additional taxable benefit. The fuel benefit charge for 2025-26 is £27,800 × BIK%. On the same petrol car at 29%, that adds £8,062 to your taxable income — £1,612/year in extra tax for a Basic Rate payer. Unless you drive very high private mileage, it is rarely worth accepting free fuel given the tax cost.
Is a company car worth it?
For electric vehicles in 2025-26, the BIK rate of 3% makes company cars highly tax-efficient — especially combined with the car's running costs being covered by the employer. For petrol or diesel cars with high CO2 emissions, the tax cost often exceeds the benefit, particularly for Higher Rate taxpayers. Running your own car and claiming HMRC mileage rates (45p/mile for the first 10,000 miles) can be more cost-effective for lower-mileage drivers.
Frequently asked questions
How is BIK collected?
HMRC adds the taxable benefit to your tax code, reducing your personal allowance and collecting the tax through PAYE. Your employer reports the benefit on form P11D (or via payroll) each year.
What if I only have the car for part of the year?
The benefit is pro-rated. If you had the car for six months of the tax year, the taxable benefit is halved.