If your employer provides you with a company car that you can use for personal journeys, you'll pay Benefit in Kind (BIK) tax on it. The amount depends on the car's value, its CO2 emissions, and your income tax rate. Understanding how this works helps you choose a car that minimises your tax bill — and avoid nasty surprises on your payslip.
This guide explains the formula, provides the current 2026/27 BIK rates, and walks through three worked examples so you can calculate exactly what you'll pay.
1. The Formula
Company car tax is calculated using a simple formula with three inputs:
Annual BIK Tax = P11D Value × BIK Rate (%) × Your Tax Rate (%)
- P11D value — The car's list price including options and delivery, minus the first registration fee
- BIK rate — A percentage set by HMRC based on the car's CO2 emissions (see table below)
- Your tax rate — 20% (basic rate), 40% (higher rate), or 45% (additional rate)
To get your monthly cost, divide the annual figure by 12. This is roughly what you'll see deducted through your PAYE tax code each month.
2. Finding Your P11D Value
The P11D value is not the price you paid for the car or its current market value. It's the car's original list price including any factory-fitted options and delivery charges, minus the first registration fee (currently £55).
How to find it:
- Check your P11D form — your employer must provide one by 6 July each year
- Look at your payslip — many employers show the BIK value on monthly payslips
- Check the manufacturer's price list for your exact model, trim, and options at time of first registration
- Ask your fleet manager or HR department
3. Looking Up Your BIK Rate (2026/27)
The BIK percentage is determined by the car's CO2 emissions (g/km). Here are the key rates for the 2026/27 tax year:
| CO2 Emissions (g/km) | BIK Rate 2026/27 |
|---|---|
| 0 (pure electric) | 2% |
| 1–50 (electric range >130 miles) | 2% |
| 1–50 (electric range 70–129 miles) | 5% |
| 1–50 (electric range 40–69 miles) | 8% |
| 1–50 (electric range 30–39 miles) | 12% |
| 1–50 (electric range <30 miles) | 14% |
| 51–54 | 15% |
| 55–59 | 16% |
| 60–64 | 17% |
| 65–69 | 18% |
| 70–74 | 19% |
| 75–79 | 20% |
| 80–84 | 21% |
| 85–89 | 22% |
| 90–94 | 23% |
| 95–99 | 24% |
| 100–104 | 25% |
| 105–109 | 26% |
| 110–114 | 27% |
| 115–119 | 28% |
| 120–124 | 29% |
| 125–129 | 30% |
| 130–134 | 31% |
| 135–139 | 32% |
| 140–144 | 33% |
| 145–149 | 34% |
| 150–154 | 35% |
| 155–159 | 36% |
| 160+ | 37% |
You can find your car's CO2 emissions on the V5C registration document, the manufacturer's specification sheet, or by searching at GOV.UK vehicle enquiry service.
4. Choosing Your Tax Bracket
For the 2026/27 tax year, the UK income tax rates are:
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
If you're a higher-rate taxpayer, company car tax costs you twice as much as a basic-rate taxpayer on the same car. This is why higher earners with high-emission company cars often find a car allowance more attractive.
5. Worked Examples
Let's calculate the annual BIK tax for three different company cars, all for a 40% (higher-rate) taxpayer:
| Tesla Model 3 | BMW 330e PHEV | BMW 320d Diesel | |
|---|---|---|---|
| P11D value | £42,000 | £45,000 | £40,000 |
| CO2 emissions | 0 g/km | 36 g/km (70-mile range) | 118 g/km |
| BIK rate | 2% | 8% | 28% |
| Taxable benefit | £840 | £3,600 | £11,200 |
| Annual tax (40%) | £336 | £1,440 | £4,480 |
| Monthly cost | £28 | £120 | £373 |
The difference is stark. The Tesla Model 3 costs just £28 per month in BIK tax, while the diesel BMW 320d costs £373 per month — over 13 times more. This is why electric company cars have become so popular.
Looking for your next company car?
Browse electric and hybrid cars on SortedCars.
6. How to Check Your P11D Is Correct
Errors on P11D forms are surprisingly common. If your employer has included the wrong options, used the wrong list price, or applied the wrong CO2 band, you could be paying too much tax. Here's how to check:
- Review your P11D form — Issued by your employer by 6 July each year. Check the car's list price and accessories listed match your actual car
- Check your payslip — Look for the BIK figure and verify it matches your calculation
- Verify the CO2 figure — Compare what's on the P11D with the manufacturer's official figure for your exact model and engine
- Check your tax code — Log into your Personal Tax Account on GOV.UK to see what HMRC has recorded
If you find an error, raise it with your employer's payroll department first. If they don't correct it, contact HMRC directly.
7. Common Mistakes
- Using the wrong CO2 band — Make sure you're using the WLTP figure, not the older NEDC figure. WLTP figures are typically higher
- Forgetting factory options — Every factory-fitted option adds to the P11D value. A £2,000 technology pack increases your tax every year
- Confusing P11D with market value — The P11D is based on original list price, not what the car is worth now. A 3-year-old car is still taxed on its original P11D
- Not claiming fuel benefit correctly — If your employer pays for private fuel, there's an additional fuel benefit charge. If you reimburse all private fuel, make sure this is reflected
- Ignoring salary sacrifice — Salary sacrifice schemes can reduce your BIK cost further, especially for EVs, but the rules are specific
8. Reducing Your BIK Tax
If your current company car BIK tax feels too high, here are your options:
- Switch to a pure electric vehicle — At just 2% BIK, an EV is the single most effective way to slash your company car tax. Even an expensive EV costs less in BIK than a modest diesel
- Choose a plug-in hybrid with long electric range — PHEVs with 70+ miles of electric range qualify for lower BIK rates (5% or less)
- Make a capital contribution — You can contribute up to £5,000 towards the cost of the car, which reduces the P11D value used for tax purposes
- Avoid expensive options — Strip out factory options you don't need. Every option increases your P11D and your tax bill
- Consider salary sacrifice — If your employer offers a salary sacrifice car scheme, this can reduce both your income tax and National Insurance contributions. Read our salary sacrifice guide for details
Final Thoughts
Company car tax doesn't have to be complicated. The formula is straightforward: P11D value × BIK rate × your tax rate. The key is knowing your numbers and checking they're correct.
If you're choosing a new company car, the BIK rate should be one of your first considerations. The difference between an electric car at 2% and a diesel at 28% can save a higher-rate taxpayer over £4,000 per year. That's a meaningful amount that adds up over a typical 3–4 year company car cycle.
BIK rates and tax thresholds are set by HMRC and can change. Always verify the current rates at GOV.UK or consult a qualified accountant for advice specific to your situation.
Related reading: Company Car BIK Tax Explained | Electric Company Cars — Why 2% BIK Changes Everything
Frequently Asked Questions
Find Your Next Company Car on SortedCars
Browse verified electric and hybrid listings.