Company Car Tax (BIK) Calculator UK 2026/27

Company Car Tax (BIK) Guide 2026/27

How BIK is Calculated?

Company car tax (Benefit in Kind) is calculated as: BIK value = P11D price × BIK percentage band. Annual tax = BIK value × your marginal tax rate. P11D price: manufacturer's list price including VAT, delivery, accessories (not road tax or first-registration fee). BIK percentage: set by HMRC, depends on CO₂ emissions and fuel type. Range from 2% (pure EV 2026/27) to 37% (high-emission petrol). The lower the emissions, the lower the tax — strong incentive built into the system. Note: 2026/27 rates are frozen for EVs at 2% but scheduled to rise gradually in future years, so check the current year's rate before making a long-term leasing decision.

Why EVs Dominate Company Car Choice?

Pure EV 2026/27 BIK: 2%. Plug-in hybrid PHEV (>130 mile electric range): 2%. PHEV (70-129 miles): 5%. PHEV (40-69 miles): 8%. PHEV (30-39 miles): 12%. PHEV (under 30 miles): higher rates. Combustion petrol/diesel: 15-37% depending on CO₂. Example comparison on £40,000 car: BMW 330e PHEV (38 mile range, ~30g/km): 12% BIK = £4,800/year. Higher-rate tax = £1,920/year. Tesla Model 3 (0g/km EV): 2% BIK = £800/year. Higher-rate tax = £320/year. BMW 330i petrol (160g/km): 37% BIK = £14,800/year. Higher-rate tax = £5,920/year — nearly £5,600/year more than the equivalent EV, which is why EVs have become the default company car choice wherever a suitable model exists.

What do I need to know about Diesel Surcharge Details?

Diesel cars have additional 4% surcharge on BIK rate UNLESS they meet RDE2 (Real Driving Emissions Step 2) standard. Most diesels manufactured from January 2020: RDE2 compliant by default. Cars from 2018-2019: may or may not be — check manufacturer specs. Pre-2018 diesels: typically pre-RDE2 (surcharge applies). RDE2 is about real-world (not lab) NOx emissions, not just CO₂. The surcharge is capped at maximum 37% total BIK. Diesel hybrid: not affected by the surcharge, as it's classed as a separate fuel type and taxed on its own emissions rating instead.

What should I know about Fuel Benefit and Other Considerations?

Fuel benefit: if employer pays private mileage fuel for company car, additional BIK charge applies. 2026/27: multiplier £27,800 × BIK percentage. EV: no fuel benefit charge applies (electricity for charging not classed as fuel). Big advantage for EV company car drivers. Practical considerations: company car policy: not all employers offer all vehicles. Many have approved lists. Alternative: cash allowance + buy own car. Calculate tax on cash allowance vs BIK. Often (especially with EVs) BIK wins financially over a cash allowance, but always run both numbers for your specific tax band and mileage before deciding.

Why CO2 Emissions Drive the Tax Bill More Than the Car's Price

Company car tax (Benefit-in-Kind, or BiK) in the UK is calculated by applying a percentage — determined primarily by the car's official CO2 emissions, with electric and very low-emission vehicles taxed at a much lower percentage than higher-emission petrol or diesel models — to the car's "P11D value" (broadly its list price including VAT and most options, but excluding the first registration fee and vehicle tax). That resulting Benefit-in-Kind figure is then taxed at the employee's normal marginal income tax rate. This structure means two cars of identical list price can carry very different tax bills purely because of their emissions banding, which is precisely why fully electric and plug-in hybrid company cars have become so much more tax-efficient for employees than equivalent petrol models in recent years.

Why Electric Company Cars Have Become So Popular With Employees

Because the BiK percentage for zero and very low emission vehicles sits dramatically below the percentage applied to conventional petrol or diesel cars, an employee choosing a fully electric company car instead of a comparable petrol model can see their annual tax bill fall by a large multiple for a car of similar list price, even before accounting for lower running costs. Many employers have responded by building salary sacrifice electric car schemes, where the employee gives up gross salary (saving income tax and National Insurance on the sacrificed amount) in exchange for the car, stacking the salary sacrifice saving on top of the already favorable low BiK rate — a combination that has made electric company cars one of the most tax-efficient benefits available to UK employees.

Salary Sacrifice Car Schemes vs a Traditional Company Car

A traditional company car is provided by the employer and taxed on the employee as a benefit in kind based on the car's list price and CO2 emissions, with the employer bearing the purchase or lease cost directly. A salary sacrifice car scheme works differently: the employee gives up part of their gross salary in exchange for the car being provided through the scheme, and the car is still taxed as a benefit in kind in largely the same way a traditional company car would be, but the salary given up also reduces the employee's income tax and National Insurance liability on that portion of pay, since it's deducted before tax is calculated. For low-emission and electric vehicles, where the benefit-in-kind tax rate is low, this combination, reduced taxable salary plus a low BIK charge, can make a salary sacrifice EV scheme considerably cheaper overall than financing the same car privately out of post-tax income, even after accounting for the BIK tax due. The comparison is less favourable for higher-emission vehicles, where a higher BIK rate can offset much of the saving from reduced salary, which is a major reason salary sacrifice car schemes have become heavily weighted toward electric and plug-in hybrid vehicles since their tax treatment improved.

Worked Example: BIK Tax Bill, Electric vs Petrol

An employee is given a company car with a list price (P11D value) of £35,000. For a fully electric vehicle, the BIK percentage is currently very low (often cited around 2-3% in recent tax years, though this is scheduled to rise gradually in future years under announced plans, so always check the current and future-year percentage for the specific tax year in question). At, say, 3%, the taxable benefit is £35,000 × 3% = £1,050/year. A higher-rate (40%) taxpayer then pays income tax on that benefit: £1,050 × 40% = £420/year in company car tax. Compare the same £35,000 list price for a petrol car with CO2 emissions putting it in a band around, say, 30%: taxable benefit is £35,000 × 30% = £10,500/year, and the same higher-rate taxpayer pays £10,500 × 40% = £4,200/year — ten times the electric car's tax bill for the same list price, purely because of the CO2-based BIK percentage difference. This gap is the single biggest reason electric vehicles have become the dominant company car choice in recent years.

How BIK Percentage Typically Scales With CO2 Emissions

BIK percentage bands are set by the government and revised through policy announcements (often confirmed several years ahead for electric vehicles specifically to give fleet buyers visibility), so always check the specific tax year's confirmed percentage for the vehicle's exact CO2 figure and fuel type rather than relying on a general table like this one.