A company car provided by an employer for an employee’s private use creates a benefit in kind (BIK) that is subject to income tax for the employee and Class 1A National Insurance for the employer. The taxable value depends on the car’s list price, its CO2 emissions and the fuel type. Understanding company car tax is essential for both employers reporting through P11D and employees evaluating whether a company car is a tax-efficient part of their benefits package.
How Company Car BIK Is Calculated
The annual taxable benefit is:
List price of the car × BIK percentage rate
List Price
The P11D value (list price) includes:
- The manufacturer’s list price when new (including VAT)
- Delivery charges
- Optional extras and accessories fitted before the car was first made available
- Accessories added later costing £100 or more each
It does not include:
- The first year’s road tax
- Charges for the employer’s name or logo
- Equipment needed for a disabled employee
Capital Contributions
If the employee makes a capital contribution towards the cost of the car, this reduces the list price used in the BIK calculation by up to £5,000.
BIK Percentage Rates by CO2 Emissions
The BIK percentage depends on the car’s CO2 emissions and fuel type, and for plug-in hybrids on its zero-emission electric range. HM Treasury sets the bands, usually several tax years ahead, and HMRC publishes the current table on GOV.UK.
The table follows a few fixed principles:
- Pure electric cars (0 g/km) sit in the lowest band
- Plug-in hybrids with emissions of 1–50 g/km are banded by electric range: the longer the range, the lower the percentage
- Above 50 g/km, the percentage rises by one point for each 5 g/km band up to a maximum percentage
- Diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standard have a 4% supplement added, still capped at the maximum
The rates for zero and low-emission cars have been set to rise gradually year by year, so check the percentages for the years a car will be provided before comparing a long lease.
Calculation Example
The examples below use illustrative BIK percentages and NIC rates. An employee is provided with a petrol car with a list price of £35,000 in a band with a 28% BIK rate:
| Step | Detail | Amount |
|---|---|---|
| List price | P11D value | £35,000 |
| BIK rate | Illustrative band | 28% |
| Taxable benefit | £35,000 × 28% | £9,800 |
| Tax (basic rate 20%) | Employee pays | £1,960/year |
| Tax (higher rate 40%) | Employee pays | £3,920/year |
| Employer Class 1A NIC (illustrative 15%) | £9,800 × 15% | £1,470/year |
Compare with a pure electric car at the same list price, with an illustrative 4% BIK rate:
| Step | Detail | Amount |
|---|---|---|
| List price | P11D value | £35,000 |
| BIK rate | 0 g/km | 4% |
| Taxable benefit | £35,000 × 4% | £1,400 |
| Tax (basic rate 20%) | Employee pays | £280/year |
| Tax (higher rate 40%) | Employee pays | £560/year |
| Employer Class 1A NIC (illustrative 15%) | £1,400 × 15% | £210/year |
Fuel Benefit Charge
If the employer also pays for private fuel (fuel used for non-business journeys), an additional benefit charge applies. It uses a fixed multiplier set by HM Treasury for each tax year, usually uprated with inflation:
Fuel benefit = car fuel benefit multiplier × the car’s BIK percentage
For the petrol car above, with a 28% BIK rate and an illustrative multiplier of £30,000, the fuel benefit would be £8,400. A basic rate taxpayer would pay £1,680 in tax on it, and the employer would pay Class 1A NIC on the same amount. The current multiplier is on GOV.UK alongside the car benefit rates.
The fuel benefit charge is all or nothing — it applies in full even if the employer only pays for a small amount of private fuel. The only way to avoid it is for the employee to reimburse the employer for all private fuel costs.
Electric Vehicles
There is no fuel benefit charge for electricity used to charge a fully electric company car, whether charged at the workplace or at home. This is another significant advantage of electric company cars.
Tax Code Adjustments
HMRC collects company car tax by adjusting the employee’s tax code. The taxable benefit value is added to the employee’s coding notice, which reduces the tax-free allowance and spreads the tax across pay periods. If the car benefit is payrolled, the employer adds the benefit value to the employee’s taxable pay each period and deducts tax at source.
P11D Reporting
Employers must report company car benefits on the P11D by 6 July following the end of the tax year, unless the benefit is payrolled. The P11D must include:
- Make and model of the car
- Date first registered
- CO2 emissions and fuel type
- List price including optional extras
- Capital contributions by the employee
- Dates available (if not the full tax year)
- Private fuel provided (yes/no)
- Any amount the employee pays for private use of the car
The employer also pays Class 1A NICs on the benefit by 22 July and reports the total on form P11D(b).
Salary Sacrifice for Company Cars
Electric and ultra-low emission company cars can be provided through salary sacrifice. Because zero-emission cars sit in the lowest BIK band, the taxable value under the Optional Remuneration Arrangements rules can still be much lower than for a petrol or diesel car. The employer must model lease cost, BIK, National Insurance and termination terms rather than assuming every scheme produces a saving.