Company Car Tax UK 2026: Benefit in Kind Rates and Calculator

Company car tax, more formally the Benefit-in-Kind (BiK) tax on provision of a company car available for private use, is calculated in the United Kingdom as the appropriate BiK percentage multiplied by the P11D list price of the vehicle, multiplied by the employee's marginal income tax rate, producing the annual BiK tax liability, per HMRC Employment Income Manual on gov.uk. The appropriate percentage is published annually by HM Treasury and sits in a band structure linked to the vehicle's CO2 emissions, running from 3 per cent for zero-emission cars from April 2025 (rising by one percentage point per year) up to 37 per cent for the highest emitters. The employer also pays Class 1A National Insurance contributions on the same BiK value at the prevailing rate. The P11D value covers the list price at first registration including VAT, delivery, and factory options but excluding first-year VED. Significant policy changes taking effect on 1 April 2025 included the reclassification of most double-cab pickups as cars rather than vans for BiK purposes, a material change that increased the BiK tax exposure for company-provided pickup drivers. Employees with private use of a company car must pay BiK; those with strict business-use-only arrangements do not, subject to HMRC conditions on garaging and documentation.

How is company car BiK calculated?

The calculation is BiK% × P11D value × marginal income tax rate, producing the annual BiK income tax liability, per HMRC Employment Income Manual EIM23000 on gov.uk. A 20 per cent basic-rate taxpayer with a £40,000 P11D value EV on the 2025-26 3 per cent BiK pays £240 per year (3% × £40,000 × 20%). A 40 per cent higher-rate taxpayer on the same car pays £480 per year.

The employer also pays Class 1A National Insurance at 13.8 per cent on the BiK value, so the £40,000 EV example generates £165.60 of employer NIC annually (13.8% × 3% × £40,000). The total employer-plus-employee tax cost is material input into salary-sacrifice scheme economics, which compare the combined cost against the post-tax lease cost of the employee running the car personally.

What is the BiK band structure?

The 2025-26 BiK percentage table on gov.uk runs: zero emissions 3 per cent, 1-50 g/km bands split by electric range (2 per cent for 130+ miles, rising to 14 per cent for under-30 miles), 51-54 g/km 15 per cent, then rising by 1 percentage point per 5 g/km band up to 37 per cent at 170 g/km or higher (petrol) or 160 g/km (diesel without RDE2). Diesels without RDE2 certification also add a 4 per cent supplement, capped at 37 per cent.

The BiK rates are published multiple years in advance to allow fleet planning, with tapering upwards for zero-emission vehicles from 3 per cent in 2025-26 to 4 per cent in 2026-27 and 5 per cent in 2027-28 under the current Treasury-published schedule. Changes to the band structure are announced at Budget and typically take effect from 6 April following announcement.

How did pickup reclassification change things?

From 1 April 2025, most double-cab pickups with a payload of one tonne or more ceased to be classified as vans for BiK purposes and are now treated as cars, per HMRC guidance announced in February 2024 after the initial policy reversal was resolved. The change followed a Court of Appeal ruling (Coca-Cola case) on the correct VAT classification and was aligned across VAT, BiK, and capital allowances for consistency.

The effect is that a company-provided double-cab pickup with private use now attracts CO2-based BiK typically in the 30 to 37 per cent range rather than the £3,960 flat van BiK. For a £50,000 pickup at 220 g/km on 37 per cent BiK, a higher-rate taxpayer pays £7,400 annually rather than the £1,584 they would have paid under the flat van rate, a 367 per cent increase. Transitional protection for vehicles ordered before 6 April 2025 runs to the earlier of lease end, vehicle disposal, or 5 April 2029.

What counts as the P11D value?

The P11D value is the list price of the vehicle at first registration including VAT, delivery charges, and any factory-fitted options and accessories, but excluding the first-year VED (showroom tax) and the £55 registration fee, per HMRC Employment Income Manual EIM24300 on gov.uk. The P11D value is fixed at first registration and does not change across the vehicle's life with the same employer.

Employee capital contributions (where the employee contributes toward the purchase of the car) up to £5,000 reduce the P11D value and therefore the BiK. Employee private-use contributions (where the employee pays the employer monthly for having the car) reduce the BiK value directly. Both mechanics create salary-sacrifice arrangement planning space for senior employees and company fleet managers.

How do powertrain choices compare on BiK?

The comparison shows the powerful BiK incentive toward EVs: a higher-rate employee pays £480 annually for an EV versus £5,600 for a comparable petrol on the same £40,000 list price. This differential has driven the fast growth in salary-sacrifice EV schemes among UK employers since 2020.

How are BiK benefits reported?

Employers report company car BiK to HMRC either via the annual P11D form (due 6 July following the end of the tax year) or through voluntary payrolling of benefits, where the BiK value is spread across the monthly payroll and taxed via PAYE in real time, per HMRC guidance on gov.uk. Payrolling has become the default modern approach because it avoids the end-of-year cash flow shock of a P11D tax bill.

From 6 April 2026, HMRC is mandating payrolling of most benefits in kind including company cars, ending the P11D route for the bulk of employer reporting. Employers should have transitioned to payrolled benefits by the 2026-27 tax year. Employees see the BiK reflected in their monthly tax code and net pay rather than as a year-end adjustment.

What HMRC data is published?

HMRC publishes annual company car tax statistics on gov.uk as part of its annual statistics release, showing total taxable value, average BiK by powertrain, and employer and employee counts. The most recent release provides the live picture, with EV share of the company car population growing sharply since the low BiK rates took effect.

The Office for Budget Responsibility forecasts BiK receipts in its twice-yearly Economic and Fiscal Outlook on obr.uk. Industry data from the British Vehicle Rental and Leasing Association (BVRLA) on bvrla.co.uk tracks fleet ordering patterns by powertrain and segment, providing a leading indicator of where the company car parc is heading, and is commonly used by fleet managers and policymakers.

Frequently asked questions

How is BiK calculated?

Appropriate BiK percentage × P11D list price × marginal income tax rate = annual tax. The employer also pays Class 1A NIC at 13.8 per cent on the same BiK value.

What is the EV rate?

3 per cent in 2025-26, rising 1 point per year to 4 per cent in 2026-27 and 5 per cent in 2027-28 under the Treasury's published schedule.

What is the maximum BiK rate?

37 per cent for cars emitting 170 g/km or more (petrol) or 160 g/km or more (diesel without RDE2), with the diesel 4 per cent supplement capped at that level.

Are pickups still vans for BiK?

No. From 1 April 2025 most double-cab pickups are treated as cars for BiK. Transitional protection runs to lease end, disposal, or 5 April 2029 for vehicles ordered before 6 April 2025.

Do I pay BiK if I only use the car for work?

No, where private use is genuinely prohibited and documented. HMRC requires evidence including policy, garaging rules, and mileage records to defend the no-private-use position.

Can I reduce BiK by paying my employer?

Yes. Private-use contributions paid to the employer reduce the BiK value pound for pound. Capital contributions up to £5,000 reduce the P11D value.

What is payrolling benefits?

Spreading the BiK value across monthly payroll so that tax is collected in real time via PAYE, rather than reported annually on P11D. Mandatory for most benefits from 6 April 2026.

Sources

• HMRC, Employment Income Manual EIM23000 and EIM24300, gov.uk — accessed April 2026.
• HMRC, Tax on company benefits, gov.uk/tax-company-benefits/tax-on-company-cars — accessed April 2026.
• HM Treasury, Appropriate percentages for company cars, gov.uk — published multi-year schedule.
• HMRC, Double-cab pickup classification guidance, gov.uk — February 2024 policy update.
• HMRC, Payrolling benefits in kind, gov.uk — April 2026 mandate details.
• Office for Budget Responsibility, Economic and Fiscal Outlook, obr.uk — BiK forecasts.
• British Vehicle Rental and Leasing Association, bvrla.co.uk — fleet ordering data.

Related reading on kaeltripton.com: Company car BiK tax, EV tax April 2025, Double-cab pickup BiK 2026.