Company Car Tax Explained: BIK Rates, P11D Value, and Fuel Benefit

Company car tax is the income tax you pay when your employer gives you a vehicle you can use privately, including for commuting. HMRC treats that private use as part of your pay, so each tax year you owe tax on a percentage of the car’s list price. For 2026-27, that percentage runs from 4% for a pure electric car to a cap of 37% for the highest-emitting petrol and diesel models, and you pay tax on the resulting figure at your normal income tax rate.

How Your Tax Bill Is Worked Out

Three numbers decide what you pay: the car’s P11D value, the benefit-in-kind (BIK) percentage set by its CO2 emissions, and your marginal income tax rate. Multiply the first two to get the taxable benefit, then apply your tax rate to that.

A worked example makes it concrete. Your employer provides a petrol car with a P11D value of £35,000 and CO2 emissions of 110 g/km. The BIK rate is 28%, giving a taxable benefit of £9,800. A basic-rate taxpayer pays £1,960 a year. A higher-rate taxpayer pays £3,920 on the same car. The bands that decide which rate applies to you in 2026-27 are:¹

Basic rate (20%): taxable income from £12,571 to £50,270
Higher rate (40%): £50,271 to £125,140
Additional rate (45%): over £125,140

You do not pay this as a lump sum. HMRC adjusts your tax code so your personal allowance effectively shrinks by the amount of the taxable benefit, and the extra tax comes out of your monthly salary through PAYE. On your coding notice, it usually appears as “car benefit.”

What Goes Into the P11D Value

The P11D value is the starting figure, named after the form your employer files. It is the manufacturer’s published UK list price on the day before the car was first registered, including VAT, delivery, and any customs or excise duty. The first registration fee is not included, because HMRC treats it as an admin charge rather than part of the price.²

Optional extras fitted before delivery are added on. Upgraded wheels, metallic paint, a panoramic roof, a tow bar — anything ticked on the original order form counts. Accessories fitted after delivery are also added if they cost £100 or more, so even a dashcam or upgraded floor mats can push the figure up. It is worth asking your employer for a breakdown of exactly what was ordered.

Capital Contributions

If you pay toward the cost of the car or its accessories yourself, that contribution reduces the P11D value. The maximum you can knock off is £5,000 over the life of the car, and the reduction carries through every tax year you have the vehicle, not just the year you paid.²

Part-Year Availability

If the car is only available for part of the tax year — you start a new job in September, or hand it back in January — the taxable benefit is scaled down. HMRC uses the number of days the car was available divided by the total days in the tax year.³

BIK Percentages for 2026-27

The percentage of the P11D value taxed as your benefit is set by CO2 emissions. Pure electric cars sit at 4% for 2026-27, up from 3% in 2025-26 and 2% in 2024-25. That steady climb matters if you are choosing a car today and want to forecast a few years ahead.⁴

Plug-in hybrids emitting 1 to 50 g/km of CO2 are split by their electric-only range:

130 miles or more: 4%
70 to 129 miles: 7%
40 to 69 miles: 10%
30 to 39 miles: 14%
Under 30 miles: 16%

Above 50 g/km, the rate rises in roughly 1-percentage-point steps for every 5 g/km. A petrol car at 100 g/km sits at 26%, one at 130 g/km at 32%, and anything at 155 g/km or above is capped at 37%.

The Diesel Supplement

Diesel cars not certified to the Real Driving Emissions 2 (RDE2) standard have an extra 4% added to their BIK percentage, though the total still cannot exceed 37%. Diesel plug-in hybrids are treated as alternative fuel vehicles and are exempt from the supplement regardless of RDE2 status.⁵

The Separate Fuel Benefit Charge

If your employer pays for fuel you use on personal journeys, a second charge applies on top of the car tax. HMRC does not track your actual litres. Instead, it uses a flat annual multiplier — £29,200 for 2026-27 — and applies the same BIK percentage set by your car’s emissions.⁶

On the 28% car from earlier, the fuel benefit is 28% of £29,200, or £8,176. A basic-rate taxpayer then owes £1,635 in tax on the fuel alone, on top of the £1,960 for the car. The charge is fixed. It does not shrink if you only drive 500 personal miles a year.

You can avoid it by paying for all private fuel yourself, but “all” is the operative word. If your employer covers any portion of private fuel during the year and you do not fully reimburse it, the whole annual charge applies. For anyone with low personal mileage, accepting employer-paid fuel often costs more in tax than the fuel is worth.

When a Company Car Is Not Taxable

A car triggers the BIK charge from the moment it is “made available” for your private use. Weekends, evenings, and the daily commute all count, and the charge runs for every day the car is available whether you drive it or not.⁷

The main exception is a genuine pool car: shared between employees, used only for business, kept at the workplace rather than at anyone’s home, with no one person dominating its use and any personal mileage merely incidental to a business trip. Fail any of those and the full BIK charge applies. A regular detour to pick up groceries on the way back to the office is enough to disqualify it.⁸

Ways to Reduce What You Pay

Private Use Payments

Payments you make to your employer specifically for the right to use the car privately reduce the taxable benefit pound for pound, and can bring it to zero. The payment must be a condition of the car being available for private use, and must be made within the tax year or by 6 July following it. Payments for specific costs like fuel or insurance do not count — only a payment for private use itself.²

Salary Sacrifice

Under salary sacrifice, you give up part of your gross pay in return for the car. You pay less income tax and employee National Insurance because your pre-tax pay is lower. The catch is that HMRC taxes you on the higher of the BIK value or the salary you sacrificed. Meaningful savings only appear when the BIK value sits well below the sacrificed salary, which in practice means electric or very low-emission cars. On a high-emission vehicle, you are likely to be taxed on the salary figure anyway.

Cash Allowance Instead of a Car

Some employers offer a cash allowance as an alternative. That allowance is added to your salary and taxed at your normal rate with NIC on top, and if you take the car instead of the cash, you are taxed on the higher of the BIK value or the cash you turned down. For an electric car with a 4% rate, the company car almost always wins. For a high-emission car whose BIK value approaches the cash alternative, the numbers are close and depend on your circumstances.

Check the Figure Your Employer Reports

Your employer reports the taxable benefit either on a P11D form after the tax year ends or through payrolling, where the value is added to your pay each period and taxed in real time.⁷ Either way, you should check the P11D value used. A wrong list price, an accessory counted twice, or a missed capital contribution can inflate your tax bill for every year you hold the car. Raise any discrepancy with your employer first, then with HMRC. Correcting it now saves overpaying for the whole time the car is yours.

1
GOV.UK. Income Tax Rates and Personal Allowances
2
HM Revenue & Customs. How to Work Out the Benefit of a Company Car (480: Chapter 12)
3
UK Parliament. Income Tax (Earnings and Pensions) Act 2003 – Section 121
4
HM Revenue & Customs. Work Out the Appropriate Percentage for Company Car Benefits (480: Appendix 2)
5
GOV.UK. Income Tax: Cars Appropriate Percentage – Increasing the Diesel Supplement
6
GOV.UK. Increase to Van Benefit Charge and Fuel Benefit Charges for Cars and Vans
7
HM Revenue & Customs. Voluntary Payrolling of Benefits in Kind
8
UK Parliament. Income Tax (Earnings and Pensions) Act 2003 – Section 167