Company Car Tax (BIK) Explained
Learn how Benefit-in-Kind (BIK) tax works, how company car tax is calculated, and why electric cars often have much lower tax bills.
Key Takeaways
- Benefit-in-Kind (BIK) tax is what you pay when you use a company car for personal journeys.
- Company car tax is based on the car’s list price, CO₂ emissions, fuel type, and your income tax band.
- Electric cars have very low BIK rates, which can make them far cheaper than petrol or diesel company cars.
- Higher-emission petrol and diesel cars attract much higher BIK percentages and tax bills.
- Whether a company car or cash allowance is better depends on tax band, mileage, and the type of car offered.
What Benefit-in-Kind (BIK) tax is
Benefit-in-Kind (BIK) tax is the tax you pay when your employer provides a benefit that you can use personally.
A company car is one of the most common BIK benefits. If you use the car for:
- Commuting
- Personal trips
- Family use
…it is considered a taxable benefit.
You do not pay the full value of the car as tax. Instead, you pay tax on a calculated taxable value based on the car’s emissions and list price.
How company car tax works in the UK
Company car tax is calculated in three main steps:
- Start with the car’s P11D value (its official list price including options and VAT).
- Apply the appropriate BIK percentage based on CO₂ emissions and fuel type.
- Multiply the result by your income tax rate (20%, 40%, or 45%).
The final figure is the amount of tax you pay each year for using the company car privately.
How BIK rates are calculated
BIK rates are mainly driven by environmental factors.
CO₂ emissions
The lower the car’s CO₂ emissions, the lower the BIK percentage.
- Electric cars: very low CO₂ → very low BIK rate
- Efficient hybrids: moderate CO₂ → mid-range BIK rate
- High-emission petrol or diesel cars: high CO₂ → high BIK rate
Fuel type
Fuel type also affects the BIK rate.
General patterns:
- Electric cars: lowest BIK rates
- Plug-in hybrids: lower than petrol or diesel, depending on electric range
- Petrol cars: mid-range BIK rates
- Diesel cars: similar to petrol, but some face a small surcharge if they do not meet certain standards
List price (P11D value)
The P11D value is the official list price of the car, including:
- VAT
- Delivery charges
- Factory-fitted options
It does not include:
- First registration fee
- Road tax
A higher P11D value increases the taxable benefit, even if the BIK percentage is low.
Current BIK rates overview
BIK rates are set by the government and usually increase gradually each tax year.
Typical structure:
- Electric cars: very low single-digit percentages
- Plug-in hybrids: low to mid percentages depending on electric range
- Petrol and diesel cars: percentages rising with CO₂ emissions, up to the highest bands for high-emission vehicles
Always check the latest BIK table for the exact percentage for a specific model and tax year.
Electric vehicle BIK advantages
Electric company cars have very low BIK rates compared with petrol or diesel.
Key advantages:
- Very low taxable percentage
- Lower monthly tax deductions
- Often lower running costs
This is why many employers now offer electric cars through:
- Company car schemes
- Salary sacrifice programmes
Petrol and diesel BIK comparisons
Petrol and diesel company cars are taxed more heavily than electric cars.
General pattern:
- Low-emission petrol: mid-range BIK percentage
- Average petrol or diesel: higher BIK percentage
- High-performance or large-engine cars: highest BIK percentages
This means two cars with similar list prices can have very different monthly tax costs depending on emissions.
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Example tax calculations
These examples use simplified figures to show how BIK works.
Example 1: electric company car
- P11D value: £40,000
- BIK rate: 3%
- Taxable benefit: £40,000 × 3% = £1,200
If you are a:
- 20% taxpayer: £1,200 × 20% = £240 per year
- 40% taxpayer: £1,200 × 40% = £480 per year
Example 2: petrol company car
- P11D value: £40,000
- BIK rate: 28%
- Taxable benefit: £40,000 × 28% = £11,200
If you are a:
- 20% taxpayer: £11,200 × 20% = £2,240 per year
- 40% taxpayer: £11,200 × 40% = £4,480 per year
This shows how emissions can dramatically change the tax bill.
Company car vs car allowance
Some employers offer a choice between:
- A company car
- A cash car allowance
Pros and cons of a company car
Advantages:
- No large upfront payment
- Often includes insurance, servicing, and tyres
- Predictable monthly cost
- Low tax if the car has low emissions
Disadvantages:
- BIK tax applies
- Limited choice of vehicles
- Mileage or usage restrictions in some schemes
Pros and cons of a car allowance
Advantages:
- Full control over which car you buy or lease
- No BIK tax on the car itself
- Can choose older or cheaper vehicles
Disadvantages:
- Allowance is taxed as income
- You pay for insurance, servicing, and repairs
- Greater financial risk if the car needs major work
Tax implications of a car allowance
A car allowance is treated as salary.
This means:
- It is subject to income tax
- It is subject to National Insurance
The net amount you receive can be much lower than the headline allowance.
For higher-rate taxpayers, this can make company cars, especially electric ones, more attractive.
Salary sacrifice schemes explained
A salary sacrifice car scheme allows you to exchange part of your gross salary for a company car.
Key features:
- The payment is taken before tax
- You pay BIK tax on the car
- Often includes insurance, servicing, tyres, and breakdown cover
Salary sacrifice is especially attractive for:
- Electric vehicles with very low BIK rates
- Higher-rate taxpayers
- Drivers who want predictable monthly costs
When a company car makes financial sense
A company car is often the better option if:
- The car has low BIK rates (especially electric)
- You are a higher-rate taxpayer
- The package includes insurance and maintenance
- You want a new, reliable car with no large upfront cost
When a car allowance may be better
A car allowance may work out cheaper if:
- You drive a low-cost used car
- You have low annual mileage
- You prefer full control over your vehicle
- You can manage maintenance and repair risks
Key tips to minimise company car tax
- Choose a car with low CO₂ emissions.
- Consider electric or plug-in hybrid models.
- Avoid high-emission or high-performance company cars.
- Compare BIK costs before choosing a vehicle.
- Check whether a salary sacrifice scheme is available.
Quick checklist before choosing a company car
- I know the P11D value of the car.
- I know the BIK percentage for the current tax year.
- I have calculated the annual tax based on my income band.
- I have compared the company car with the cash allowance option.
- I understand what is included in the company car package.
- I have considered an electric or low-emission option.