Company Car Tax UK: How It Works and How to Save
Car Owl
Published in English •
Summary
- You pay tax on the car's value multiplied by its BIK rate: Low-emission cars have the lowest rates. Electric cars currently have just 2% BIK.
- Electric company cars are the cheapest to tax: At 2% BIK, a £40,000 EV costs a 20% taxpayer just £160/year.
- High-emission diesels are the most expensive: BIK rates up to 37% make them costly. See our salary sacrifice guide for savings.
A company car is a great perk. But it comes with a tax bill. Here's how it works and how to keep it as low as possible.
How Benefit in Kind (BIK) Tax Works
When your employer provides a car, HMRC treats it as a benefit — like extra salary. You pay income tax on that benefit.
The formula is:
Car's P11D value × BIK rate × Your income tax rate = Annual tax
- P11D value: The car's list price including options and delivery, but excluding road tax and first registration fee.
- BIK rate: Based on the car's CO2 emissions. Lower emissions = lower rate.
- Tax rate: Your marginal rate — 20%, 40%, or 45%.
Current BIK Rates by Emission
| CO2 Emissions | BIK Rate (2025/26) |
|---|---|
| 0 g/km (full electric) | 2% |
| 1–50 g/km (PHEV) | 2–14% |
| 51–100 g/km | 15–22% |
| 101–150 g/km | 23–31% |
| 150+ g/km | 32–37% |
Real Tax Examples
| Car | P11D Value | BIK Rate | Tax (20% payer) | Tax (40% payer) |
|---|---|---|---|---|
| Tesla Model 3 (EV) | £40,000 | 2% | £160/year | £320/year |
| BMW 330e (PHEV) | £45,000 | 8% | £720/year | £1,440/year |
| Volkswagen Golf 2.0 TDI | £30,000 | 33% | £1,980/year | £3,960/year |
A company EV can cost you £160 a year in tax. The equivalent diesel could cost £2,000+. The savings are enormous.
How to Reduce Your Company Car Tax
- Choose an electric car: 2% BIK makes EVs by far the cheapest company car option.
- Choose a plug-in hybrid: If you can't go fully electric, PHEVs with 1–50g/km emissions are the next best.
- Avoid high-emission diesels: They attract the highest BIK rates.
- Consider salary sacrifice: Some employers offer EV salary sacrifice schemes. See our salary sacrifice guide.
- Keep optional extras minimal: Every option increases the P11D value and your tax bill.
Company Car vs Car Allowance
- Company car: Employer provides and maintains the car. You pay BIK tax.
- Car allowance: Employer pays you cash to buy/lease your own car. You pay income tax and NI on the allowance.
For EVs, a company car is almost always cheaper than a car allowance. For high-emission cars, the allowance may work out better. Run the numbers for your specific situation.
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