How company car tax is calculated in the UK
When your employer provides a company car for business and private journeys, HMRC treats the private availability as a taxable Benefit-in-Kind (BIK). Rather than taxing the vehicle retail price, HMRC assigns a taxable benefit value by multiplying the car P11D value by an appropriate BIK percentage based on official CO2 emissions.
Your personal company car tax equals this taxable BIK value multiplied by your marginal income tax rate (20% for basic rate, 40% for higher rate, 45% for additional rate, or Scottish income tax equivalents). If you make a one-off capital contribution towards the vehicle purchase price, Section 147 of ITEPA 2003 allows you to deduct up to £5,000 from the P11D value. Any ongoing payments you make to your employer for private vehicle use directly reduce the annual taxable benefit pound-for-pound under Section 144.
Worked example of electric vs petrol company car
Consider an employee in the 40% higher rate tax bracket choosing a £35,000 pure electric company car (0 g/km CO2) in the 2026/27 tax year. The statutory BIK rate is 4%, creating an annual taxable benefit of £1,400.00. At the 40% tax rate, the employee pays £560.00 per year (£46.67 per month) in company car tax, while the employer pays £210.00 in Class 1A National Insurance at 15.0%.
By contrast, a basic rate (20%) employee driving a £25,000 petrol combustion car (28% BIK in 2026/27) incurs a taxable P11D benefit of £7,000.00. At 20% income tax, annual company car tax is £1,400.00 (£116.67 per month), and employer Class 1A NIC is £1,050.00. Choosing an electric vehicle yields substantial tax savings for both employee and employer.
HMRC Benefit-in-Kind rates and bands
Company car BIK percentages increase with official CO2 emissions and powertrain type. Pure electric vehicles (BEVs) receive preferential tax treatment: 2% in 2024/25, 3% in 2025/26, 4% in 2026/27, and 5% in 2027/28, stepping up by 2 percentage points annually to reach 9% by 2029/30 as legislated in the UK Autumn Budget.
Plug-in hybrid vehicles (PHEVs emitting 1 to 50 g/km CO2) are banded by certified electric-only range. Cars with 40 to 69 miles electric range attract a 9% BIK rate in 2026/27, compared to 4% for ranges of 130 miles or more. Standard petrol and RDE2-compliant diesel cars range between 18% and 37% BIK depending on emissions. Older diesels not certified to the Euro 6d (RDE2) standard incur a 4% statutory surcharge, subject to the overall 37% maximum cap.
Private fuel benefit and employer Class 1A NIC
If your employer also pays for fuel used on private or commuting journeys, HMRC levies a separate Car Fuel Benefit charge under Section 149 of ITEPA 2003. This is calculated by multiplying the national car fuel multiplier (£28,200 for 2025/26 and 2026/27) by your car BIK percentage. Crucially, HMRC does not classify electricity as a fuel for this charge, meaning pure electric company cars incur zero fuel benefit tax regardless of employer-provided charging.
Employers pay Class 1A National Insurance contributions on the total value of taxable car and fuel benefits. Following the Autumn Budget, the employer Class 1A NIC rate is 15.0% from 6 April 2025 (previously 13.8%). Class 1A contributions are an employer cost and are not deducted from your employee salary.
To compare employer-provided cars with salary sacrifice schemes, use our salary package car calculator.
To see how taxable car benefits affect your overall take-home pay, visit the UK income tax calculator.
For a complete breakdown of income tax and National Insurance, see our UK tax and NI calculator.
Inputs for the company car tax calculator
Tax year
The UK tax year for the calculation. BIK percentages and thresholds update annually each 6 April.
P11D list price
The vehicle manufacturer list price including VAT, factory options and delivery charges, but excluding registration fees and first-year road tax.
Employee capital contribution
Any one-off capital sum you pay towards purchasing the vehicle. HMRC allows a statutory deduction of up to £5,000 from the P11D value.
Vehicle powertrain & emissions
The vehicle emissions bracket and powertrain. Pure electric cars incur the lowest rates, while combustion vehicles depend on CO2 output.
Your income tax bracket
Your marginal income tax rate (20%, 40%, 45%, or Scottish tax bands) applied to the taxable Benefit-in-Kind.
Private fuel provided by employer
Select yes if your employer funds fuel for private and commuting journeys. Free electricity charging does not trigger this charge.
Annual private use payment
Contractual payments made directly to your employer for private motoring, deducted pound-for-pound from the annual car benefit.
CALCULATOR QUESTIONS
UK company car tax calculator questions
How is company car tax calculated in the UK?
Company car tax is calculated by multiplying the vehicle P11D list price by its statutory Benefit-in-Kind (BIK) percentage, and then multiplying that taxable benefit by your personal income tax bracket (20%, 40%, or 45%).
What is the P11D value of a car?
The P11D value is the manufacturer list price of the car including VAT, delivery charges, and factory-fitted optional extras, but excluding the first-year vehicle excise duty (road tax) and government first registration fee.
What is the company car tax rate for electric cars?
For 2026/27, pure electric vehicles (0 g/km CO2) attract a BIK rate of 4% (up from 3% in 2025/26 and 2% in 2024/25). The rate increases to 5% in 2027/28, 7% in 2028/29, and 9% in 2029/30.
Does paying for my own private fuel avoid the car fuel benefit charge?
Yes. If you pay for all fuel used on private journeys or fully reimburse your employer for private mileage at approved advisory fuel rates, no Car Fuel Benefit charge applies.
Who pays employer Class 1A National Insurance on company cars?
Class 1A National Insurance (15.0% from April 2025) is paid directly by your employer on the taxable value of benefits in kind. It is not deducted from employee pay.