A company car used to be the ultimate workplace perk — a shiny new vehicle on your driveway with no car loan to worry about. But the tax bill that comes with it can be a nasty surprise. A Reddit user on r/UKPersonalFinance put it bluntly: “Got a £35,000 company car, thought it was a great deal. Just got my tax code notice and I’m losing £280/month in extra tax. Nobody told me the CO2 emissions would push me into a 28% BIK rate.”
They’re not alone. Company car benefit in kind is the most complex of all the taxable benefits — because unlike private medical insurance (where the cash equivalent is just the premium), the company car BIK depends on the car’s list price, its CO2 emissions, its fuel type, and whether your employer also pays for your fuel. Get any of those variables wrong and your tax bill can be thousands of pounds off. Here’s the plain-English breakdown of how the BIK calculation works, the 2025/26 rate tables, and how much a company car actually costs you.
How Company Car Benefit in Kind Is Calculated
The company car BIK calculation has two stages. First, work out the cash equivalent (the taxable value of the benefit). Then apply your marginal tax rate to get the tax you owe.
Stage 1: The cash equivalent
The cash equivalent is calculated as:
Car’s list price × BIK percentage rate = cash equivalent
The “list price” is the manufacturer’s published price including VAT and delivery charges, but excluding the first-year Vehicle Excise Duty (VED) and the £40,000 premium car supplement. HMRC calls this the “P11D value” — it’s the figure your employer reports on your P11D form. There’s a cap: only the first £40,000 of the list price is used for the BIK calculation, so even if your car costs £60,000, the BIK is calculated on £40,000. According to HMRC’s company car tax guidance, this cap applies regardless of fuel type.
The BIK percentage rate is determined by the car’s CO2 emissions (measured in g/km under the WLTP test cycle) and, for hybrids, its electric-only range. The lower the emissions, the lower the rate — which is why electric cars are so much cheaper.
Stage 2: The tax you owe
Cash equivalent × your marginal tax rate = tax due
Your marginal rate is the rate you pay on your top slice of income — 20% (basic rate), 40% (higher rate), or 45% (additional rate). The cash equivalent is added to your income and taxed at that rate, exactly like other benefits in kind. For the broader explanation of how P11D forms work and where benefits fit into your Self Assessment, see our benefit in kind and P11D explained guide.
Your employer also pays Class 1A National Insurance at 13.8% on the cash equivalent — but that’s an employer cost, not yours. It doesn’t appear on your Self Assessment and doesn’t affect your take-home pay.
The 2025/26 BIK Rate Tables (CO2-Based)
The BIK percentage rate is the heart of the company car tax calculation. Here are the official 2025/26 rates for petrol and diesel cars (RDE2-compliant diesel), based on CO2 emissions measured in g/km:
| CO2 emissions (g/km) | BIK rate 2025/26 |
|---|---|
| 0 (fully electric) | 3% |
| 1–50 (hybrid — see range bands below) | 3%–15% |
| 51–54 | 16% |
| 55–59 | 17% |
| 60–64 | 18% |
| 65–69 | 19% |
| 70–74 | 20% |
| 75–79 | 21% |
| 80–84 | 22% |
| 85–89 | 23% |
| 90–94 | 24% |
| 95–99 | 25% |
| 100–104 | 26% |
| 105–109 | 27% |
| 110–114 | 28% |
| 115–119 | 29% |
| 120–124 | 30% |
| 125–129 | 31% |
| 130–134 | 32% |
| 135–139 | 33% |
| 140–144 | 34% |
| 145–149 | 35% |
| 150–154 | 36% |
| 155 and above | 37% |
The pattern is simple: every 5g/km of CO2 adds roughly 1% to the BIK rate. A car emitting 70g/km sits at 20%, while a gas-guzzler at 160g/km hits the 37% ceiling. The maximum rate is 37% — no matter how high the emissions, the BIK rate never goes above that.
For the full breakdown of how these rates change year by year, see HMRC’s company car tax rates and bands.
Electric and Hybrid Company Cars: The Big Savings
This is where company car tax gets interesting — and where the savings can be enormous.
Fully electric cars (0g/km CO2)
Fully electric cars have a BIK rate of just 3% in 2025/26. That’s a fraction of what a comparable petrol or diesel car would cost. A £30,000 electric car has a cash equivalent of £900/year — costing a 40% taxpayer just £360/year, or £30/month.
The government has set the electric car BIK rates years in advance to give drivers certainty:
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
Even at 5% in 2027/28, a £30,000 electric car costs a 40% taxpayer just £600/year — compared to £3,360/year for the £30,000 petrol car in our worked example below. That’s a saving of £2,760/year, or £230/month.
Hybrid cars (1–50g/km CO2)
Hybrids with CO2 emissions between 1 and 50g/km use a special banding system based on their electric-only range — the distance the car can travel on battery power alone before the petrol engine kicks in. The longer the electric range, the lower the BIK rate:
| Electric-only range (miles) | BIK rate 2025/26 |
|---|---|
| 130 and above | 3% |
| 70–129 | 6% |
| 40–69 | 9% |
| 30–39 | 13% |
| Under 30 | 15% |
So a plug-in hybrid with 80 miles of electric range and a £35,000 list price has a cash equivalent of £35,000 × 6% = £2,100/year — costing a 40% taxpayer £840/year. Compare that to a non-plug-in hybrid with only 25 miles of range at the same price: £35,000 × 15% = £5,250/year, costing £2,100/year at 40%. The electric range matters enormously.
The Fuel Benefit Charge: When Free Fuel Isn’t Free
If your employer provides free fuel for private use (as opposed to business use only), a separate fuel benefit charge applies on top of the car benefit. This is one of the most expensive benefits in kind — and many drivers don’t realise how much it costs until the tax bill arrives.
The fuel benefit is calculated as:
Fuel benefit multiplier × car’s BIK percentage rate = fuel benefit cash equivalent
For 2025/26, the fuel benefit multiplier is £27,800 (set by the government each year — see HMRC’s fuel benefit charge guidance).
So if your car has a 25% BIK rate:
- Fuel benefit cash equivalent: £27,800 × 25% = £6,950/year
- Tax at 40%: £6,950 × 40% = £2,780/year (£231.67/month)
- Tax at 20%: £6,950 × 20% = £1,390/year (£115.83/month)
That’s on top of the car benefit itself. The fuel benefit uses the same BIK percentage rate as the car — so a high-emission car with a 37% rate has a fuel benefit cash equivalent of £27,800 × 37% = £10,286/year, costing a 40% taxpayer £4,114/year just for the fuel.
Should you take the free fuel?
It depends on your private mileage. The fuel benefit is a flat charge — you pay the same tax whether you drive 2,000 private miles or 20,000. If your private mileage is low, paying for your own fuel is almost always cheaper. As a rough rule of thumb, you need to be driving around 8,000–10,000 private miles per year for the free fuel to break even, depending on your car’s fuel efficiency and your tax rate. If you’re below that, opt out of the free fuel and pay for your own.
Company Car BIK: Worked Examples
Let’s run through three concrete scenarios so you can see the maths in action.
Example 1: Petrol car, £30,000 list price, 110g/km CO2
- List price: £30,000
- CO2 emissions: 110g/km → BIK rate 28% (2025/26)
- Cash equivalent: £30,000 × 28% = £8,400/year
- Tax at 20%: £8,400 × 20% = £1,680/year (£140/month)
- Tax at 40%: £8,400 × 40% = £3,360/year (£280/month)
This is the scenario from the Reddit user at the start — a £35,000 car at a similar rate would cost even more, which is why the £280/month drop came as a shock.
Example 2: Fully electric car, £30,000 list price, 0g/km CO2
- List price: £30,000
- CO2 emissions: 0g/km → BIK rate 3% (2025/26)
- Cash equivalent: £30,000 × 3% = £900/year
- Tax at 20%: £900 × 20% = £180/year (£15/month)
- Tax at 40%: £900 × 40% = £360/year (£30/month)
The difference is staggering: the same £30,000 car costs a 40% taxpayer £3,360/year if it’s petrol, or £360/year if it’s electric. That’s a saving of £3,000/year — £250/month — purely from choosing the electric version.
Example 3: Plug-in hybrid, £35,000 list price, 40g/km CO2, 80-mile electric range
- List price: £35,000
- CO2 emissions: 40g/km (falls in the 1–50g/km hybrid band)
- Electric range: 80 miles → BIK rate 6% (2025/26)
- Cash equivalent: £35,000 × 6% = £2,100/year
- Tax at 20%: £2,100 × 20% = £420/year (£35/month)
- Tax at 40%: £2,100 × 40% = £840/year (£70/month)
A plug-in hybrid with a decent electric range sits comfortably between the cheap electric car and the expensive petrol car. The key is the electric range — the same hybrid with only 25 miles of range would jump to a 15% BIK rate, costing a 40% taxpayer £2,100/year instead of £840.
How to Calculate Your Company Car Tax
Working out the tax yourself takes four steps. The maths is straightforward once you know your BIK rate.
Step 1: Find the list price and CO2 emissions
Your employer must give you a P11D by 6 July after the end of the tax year, as set out in HMRC’s P11D completion guidance. The P11D will show the car’s list price (capped at £40,000) and the cash equivalent. You can also find the CO2 emissions on the car’s V5C logbook or the manufacturer’s spec sheet — make sure you’re using the WLTP figure, not the older NEDC figure.
Step 2: Look up your BIK rate
Use the 2025/26 rate table above. Find your car’s CO2 band (or electric range if it’s a hybrid in the 1–50g/km band). If you have a non-RDE2 diesel, add 4% (see the diesel supplement section below).
Step 3: Calculate the cash equivalent
List price × BIK rate = cash equivalent. Remember to cap the list price at £40,000 if your car costs more.
Step 4: Apply your tax rate
Cash equivalent × your marginal tax rate = tax due. For 2025/26:
- 20% if your income is between £12,570 and £50,270
- 40% if your income is between £50,270 and £125,140
- 45% if your income is above £125,140
For the full breakdown of bands, allowances, and the £100,000 taper trap, see our Personal Tax Allowance 2026 guide.
The Diesel Supplement Explained
Diesel cars that don’t meet the RDE2 (Real Driving Emissions 2) standard have a 4% surcharge added to their BIK rate, capped at the maximum 37%. RDE2-compliant diesels pay the standard rate with no supplement.
So a diesel car at 110g/km CO2:
- RDE2-compliant: 28% BIK rate (standard)
- Non-RDE2: 28% + 4% = 32% BIK rate
On a £30,000 car, that 4% difference costs a 40% taxpayer an extra £480/year (£30,000 × 4% × 40% = £480).
Most modern diesels registered after September 2019 are RDE2-compliant, so the supplement mainly affects older diesel company cars. Check your car’s emissions certificate or the manufacturer’s spec to confirm RDE2 compliance. The Vehicle Certification Agency maintains a searchable database of emissions data.
Salary Sacrifice and Company Cars
Some employers offer company cars through salary sacrifice — you give up part of your salary in exchange for the car. This can be tax-efficient because your salary (and thus your income tax and National Insurance) drops, offsetting some of the BIK cost.
However, there’s a catch: if your gross salary after the sacrifice would fall below the National Minimum Wage, the arrangement isn’t valid. And salary sacrifice affects other things too — your pension contributions (if based on a percentage of salary), life insurance cover, and statutory entitlements like maternity pay.
For electric cars, salary sacrifice is particularly attractive because the BIK rate is so low (3% in 2025/26). The salary you sacrifice is often more than the tax you’d pay on the benefit, making it a net win. Many salary sacrifice car schemes focus exclusively on electric vehicles for this reason.
If you’re considering a salary sacrifice car, compare the total cost (reduced salary + BIK tax) against buying or leasing the car yourself. The maths varies depending on your tax band, the car’s BIK rate, and your employer’s scheme terms.
5 Myths About Salary Sacrifice and Company Car Tax
Salary sacrifice cars generate more confusion than almost any other tax topic. Here are the five most common myths — each debunked with the actual rules.
Myth 1: “If I sacrifice salary for a car, I don’t pay tax on it”
Background: The logic seems sound — you give up salary, the employer provides the car, so there’s nothing left to tax.
The reality: You still pay tax. A salary sacrifice car is a taxable benefit in kind, and the tax is calculated exactly the same way as any other company car: list price × BIK rate = cash equivalent, then income tax at your marginal rate. What salary sacrifice does is reduce your salary (and thus your income tax and NI on that salary), which offsets some of the BIK tax — but it doesn’t eliminate it. According to HMRC’s employment income manual (EIM21102), the cash equivalent of the benefit is still taxable income.
What to do instead: Calculate the net position: salary sacrificed (plus the tax/NI saved on that salary) minus the BIK tax on the car. For low-emission cars with low BIK rates, salary sacrifice often wins. For high-emission cars, the BIK tax can exceed the salary saving.
Myth 2: “You pay 20% of the car’s cash value as tax”
Background: People hear “the BIK rate is 20%” for a mid-range petrol car and assume they pay 20% of the car’s price in tax.
The reality: The BIK rate is not the tax rate. The BIK rate determines the cash equivalent (the taxable value), not the tax you pay. The calculation is:
- List price × BIK rate = cash equivalent
- Cash equivalent × your marginal income tax rate (20%, 40%, or 45%) = tax due
So a £30,000 petrol car with a 28% BIK rate has a cash equivalent of £8,400/year. A 20% taxpayer pays £1,680/year — not £6,000 (which would be 20% of the list price). The BIK rate and your income tax rate are two separate numbers that multiply together, not one figure applied to the car’s value.
What to do instead: Always calculate in two steps: cash equivalent first, then tax. Never apply your income tax rate directly to the car’s list price.
Myth 3: “For EVs, you only pay 4% of the car’s value”
Background: People hear “the BIK rate for electric cars is 4%” and assume that’s the tax they pay — 4% of the car’s value.
The reality: The 4% is the BIK rate for 2026/27, not the tax rate. It determines the cash equivalent, which is then taxed at your marginal income tax rate. A £40,000 EV at 4% has a cash equivalent of £1,600/year. A 40% taxpayer pays £640/year — not £1,600, and not 4% of £40,000 (£1,600 is the cash equivalent, not the tax). The 4% figure is a multiplier to get the taxable value, not the tax itself.
What to do instead: Remember the two-step calculation. The BIK rate (3%, 4%, 5% for EVs depending on the year) gives you the cash equivalent. Your income tax rate (20%, 40%, 45%) gives you the actual tax.
Myth 4: “There’s no such thing as BIK tax”
Background: A common argument in forums — technically, HMRC doesn’t use the term “BIK tax.” They call it “income tax on the cash equivalent of a benefit in kind.”
The reality: Both sides of this debate are right. “BIK tax” is not an official term — HMRC’s legislation refers to income tax charged on the cash equivalent of a benefit, as set out in section 203 of the Income Tax (Earnings and Pensions) Act 2003. But “BIK tax” is the universally used colloquial term — the RAC, leasing companies, and most employers use it. The distinction matters for understanding the mechanics (it’s income tax, not a separate tax), but arguing about the terminology doesn’t change what you pay.
What to do instead: Understand that it’s income tax on a calculated value — not a separate tax. But don’t get bogged down in terminology debates. Whether you call it “BIK tax” or “income tax on the cash equivalent,” the calculation and the amount you owe are the same.
Myth 5: “The figure on my payslip labelled ‘Car Ben’ is the tax I’m paying”
Background: Many payslips show a figure labelled “Car Ben” or “Car Ben PY” in the deductions or adjustments section, and people assume this is the tax they’re paying on the car.
The reality: This figure is usually the cash equivalent of the benefit (the taxable value), not the tax itself. Your employer adds it to your taxable income and then deducts it from your gross pay (because you’re not receiving it as cash). The actual tax is collected through your tax code — HMRC adjusts your tax-free allowance so the extra tax is spread across the year via PAYE. You won’t see the tax as a separate line item; you’ll see your take-home pay drop because your tax code has changed.
What to do instead: Check your tax code (on your payslip or via HMRC’s tax code checker) to see how the car benefit is being collected. The “Car Ben” figure is the taxable value — your actual tax is that figure multiplied by your marginal rate, collected through your tax code.
How to Declare Company Car BIK on Your Self Assessment
If you’re in Self Assessment, you need to declare the cash equivalent from your P11D. Here’s exactly where it goes.
The right section and box
Log into your HMRC online account and open your Self Assessment return. Navigate to the “Employment benefits and expenses” section — this is separate from the main employment income section where you enter your salary.
Enter the cash equivalent in Box 7 — company cars. If you also have the fuel benefit charge, enter that in Box 8 — fuel for private use. Don’t enter the list price — enter the cash equivalent shown on your P11D, which is the list price × BIK rate.
If you’re not in Self Assessment
If you don’t file a Self Assessment return, HMRC will usually collect the tax by adjusting your tax code. They add the cash equivalent to your income and reduce your tax-free allowance so the extra tax is spread across the year via PAYE. You’ll see your take-home pay drop each month — which is what happened to the Reddit user at the start. For how this works and how to check your code is right, see our guide on how to check your tax code.
If you forgot to declare it
If you’ve already submitted your return and realise you missed your company car benefit, you have 12 months after the filing deadline to amend. Log back in, add the cash equivalent in Box 7 (and Box 8 for fuel if applicable), and resubmit. If you made a genuine mistake and correct it voluntarily, there’s no penalty. See our guide on what to do if you made a mistake on your Self Assessment for the full process.
The Bottom Line
- The cash equivalent is the list price × BIK rate. A £30,000 car at 28% has a cash equivalent of £8,400/year — costing a 40% taxpayer £3,360/year.
- The BIK rate depends on CO2 emissions. In 2025/26, rates range from 3% (fully electric) to 37% (155g/km and above). Lower emissions mean lower tax.
- Electric cars are dramatically cheaper. A £30,000 electric car costs a 40% taxpayer £360/year vs £3,360 for the same-priced petrol car — a saving of £3,000/year.
- Hybrids use range-based bands. A plug-in hybrid with 130+ miles of electric range pays just 3%; one with under 30 miles pays 15%.
- The fuel benefit charge is separate and expensive. The £27,800 multiplier × your BIK rate can add thousands to your tax bill — opt out if your private mileage is low.
- Non-RDE2 diesels pay a 4% supplement, capped at 37%. Most post-2019 diesels are RDE2-compliant.
- Declare it in Box 7 (car) and Box 8 (fuel) of the “Employment benefits and expenses” section if you’re in Self Assessment.
- If you’re not in Self Assessment, HMRC adjusts your tax code to collect the tax through PAYE — your take-home pay drops each month.
Calculate Your Company Car Tax
Use our P11D tax calculator below — or open it as a standalone page — to work out exactly how much tax you’ll pay on your company car, including the BIK rate, cash equivalent, and fuel benefit charge.
For the full guide to P11D forms and benefits in kind, see our benefit in kind and P11D explained guide. For how tax brackets work, see our Personal Tax Allowance 2026 guide. If you forgot to declare a benefit, see what to do if you made a mistake.