If your employer provides a car for personal use, HMRC treats it as a taxable benefit, and understanding how that tax is calculated can save you from an unwelcome surprise on your payslip. Here is company car tax, or Benefit in Kind, explained for the 2026/27 tax year.
What Is Company Car Tax?
Company car tax, formally known as Benefit in Kind (BiK) tax, is charged when an employer provides a vehicle that can be used for private journeys, including commuting, shopping trips or family holidays. HMRC treats this personal use as a form of additional income, taxed alongside your salary through your PAYE tax code.
How Company Car Tax Is Calculated
Your company car tax bill is calculated by multiplying the car’s P11D value, its list price including VAT and optional extras, by the appropriate BiK percentage band based on CO2 emissions, then multiplying that figure by your personal income tax rate of 20, 40 or 45 percent.
Worked Example
For a petrol car with a P11D value of £30,000, CO2 emissions placing it in the 30 percent BiK band, and a 20 percent income tax rate, the calculation is £30,000 multiplied by 30 percent multiplied by 20 percent, producing an annual company car tax bill of £1,800.
Why Electric Cars Are So Tax Efficient
Electric vehicles attract the lowest BiK rate of any vehicle type, set at just 4 percent for the 2026/27 tax year, meaning an equivalent £30,000 electric car at 20 percent income tax would cost only £240 a year in company car tax, dramatically less than the petrol equivalent. This rate is scheduled to rise gradually to 5 percent in 2027/28, but remains far below combustion engine rates for the foreseeable future.
Company Car Tax Bands Comparison
| Vehicle Type | Typical BiK Rate 2026/27 |
|---|---|
| Electric (zero emissions) | 4% |
| Plug-in hybrid (long electric range) | Lower band, varies by range |
| Petrol (average emissions) | Around 30% |
| Diesel (non-RDE2 compliant) | Higher, plus 4% supplement |
Frequently Asked Questions
Is an electric company car worth it for tax purposes?
For most higher rate taxpayers, yes, since the low 4 percent BiK rate on electric vehicles produces significantly lower annual tax bills compared with an equivalent petrol or diesel company car.
Does company car tax apply to vans?
Most vans with only incidental private use are not treated as a benefit in kind, though vans used more substantially for private purposes attract a flat rate Van Benefit Charge instead.
How is company car tax actually collected?
Company car tax is typically collected through an adjusted PAYE tax code, meaning it is deducted automatically from your salary each month rather than paid as a separate bill.
Related reading: weighing up EV vs hybrid for personal use too? See our guide on hybrid vs electric car.
Written by the Apriliapartsbuyer editorial team, covering UK car finance and tax guides. This article is for general information only and is not tax advice.
