How to calculate your company car tax
Find out how the UK’s complicated-looking benefit-in-kind system works and how it will influence your tax bill
Choosing a new set of wheels is rarely an easy process, but that decision-making becomes all the more complicated if you’re a company car driver, because it also impacts your tax bill.
If your employer provides you with a car for business use but you’re able to drive it outside work hours (and yes, that includes commuting), HMRC classes this as a benefit-in-kind (BIK).
This is a catch-all term for any workplace perk provided in addition to your salary, and these are also taxable.
Company car tax bands are usually adjusted every year and, since 2002, the system has been designed to influence drivers to choose the most fuel-efficient vehicles. Those incentives helped fuel the ‘dash for diesel’ during the 2000s and, with 720,000 company car drivers in 2021/22, they’re now driving the market for plug-in hybrids (PHEVs) and electric vehicles (EVs).
Despite the jargon, calculating your company car tax bill – and keeping it low – is a lot easier than it looks. Here’s what you need to know.
-*How does the company car tax system work?*-
For most drivers, it’s a seamless process. Company car tax is usually deducted from your monthly wages as a BIK payment, so you’re unlikely to face a hefty bill at the end of the year. However, the size of that monthly payment varies enormously.
Every company car has what’s called a taxable value, which is unique to that car. It’s calculated as a percentage of the list price (or P11D value), weighted according to its tailpipe CO2 emissions and, for PHEVs, electric-only driving range.
The list price includes optional extras, VAT and delivery charges but not the registration fee or the first year of vehicle excise duty (VED, or road tax). It’s also fixed for life, so it doesn’t reflect discounts for new cars or the lower price of a used one.
BIK is paid as a percentage of that taxable value in line with your income tax band (20%, 40% or 45%, unless you’re in Scotland, which has different rates), and that annual figure is then split equally across your pay packets.
For example, a 20% income taxpayer would be liable for 20% of the vehicle’s taxable value per year.
The cheaper the car and the lower its CO2 emissions, the lower the tax bill.
-*Which tax band does my company car fit into?*-
The starting point is finding out how much CO2 your car emits – and, if it's a PHEV, its electric-only range. Your fleet manager or vehicle supplier should have that data.
Manufacturers switched to a more granular and tougher economy test cycle in 2017, and both figures are affected by options such as larger wheels, sporty bodykits and even heavy panoramic sunroofs. This can cause some models to straddle multiple tax bands, so it’s important to check.
Those figures will help place the car in one of the following bands, which are used to calculate the taxable value. Company car tax is adjusted every April and usually increases by a steady 1% point per year. However, bands are currently frozen until April 2025, with slightly different approaches for ultra-low-emissions vehicles (up to 50g/km of CO2) and other models afterwards.
CO2
(g/km)
Electric range
(miles)
Company car tax band
2022-25
2025-26
2026-27
2027-28
N/A
2%
3%
4%
5%
0-50
>130
2%
3%
4%
5%
0-50
70-129
5%
6%
7%
8%
0-50
40-69
8%
9%
10%
11%
0-50
30-39
12%
13%
14%
15%
0-50
14%
15%
16%
17%
51-54
15%
16%
17%
18%
55-59
16%
17%
18%
19%
60-64
17%
18%
19%
20%
65-69
18%
19%
20%
21%
70-74
19%
20%
21%
21%
75-79
20%
21%
21%
21%
80-84
21%
22%
22%
22%
85-89
22%
23%
23%
23%
90-94
23%
24%
24%
24%
95-99
24%
25%
25%
25%
100-104
25%
26%
26%
26%
105-109
26%
27%
27%
27%
110-114
27%
28%
28%
28%
115-119
28%
29%
29%
29%
120-124
29%
30%
30%
30%
125-129
30%
31%
31%
31%
130-134
31%
32%
32%
32%
135-139
32%
33%
33%
33%
140-144
33%
34%
34%
34%
145-149
34%
35%
35%
35%
150-154
35%
36%
36%
36%
155-159
36%
37%
37%
37%
160+
37%
37%
37%
37%
-*Calculating the BIK rate on diesel cars*-
No longer the darling of the environmental lobby, diesel cars have fallen out of favour in recent years and so can face additional tax penalties as a company car.
Since January 2021, all new petrol, diesel and hybrid cars have had to meet a standard called Real Driving Emissions Step 2 (RDE2), which requires on-road exhaust emissions to almost match laboratory conditions.
Diesels registered before this date that aren't RDE2-compliant (some gained RDE2 compliance early, so check with your supplier) attract a 4% surcharge on their published BIK rate – which tops out at 37%. It’s worth considering this if you’re looking at a second-hand diesel as a company car.
All new diesels are now RDE2-compliant, meaning the 4% surcharge doesn't apply. Diesel-electric hybrids are classed as alternatively fuelled vehicles so avoid a surcharge whether they're RDE2-compliant or not.
-*Calculating the BIK rate on electric cars*-
With zero tailpipe CO2 emissions, electric company cars attract the lowest tax bills - in fact, drivers paid 0% BIK in 2020/21. Rates are currently frozen at 2% until the end of the 2024/25 tax year, but HMRC has confirmed that generous incentives will remain in place for most of the rest of the decade.
-*Calculating the BIK rate on hybrid and plug-in hybrid cars*-
Owing to their low CO2 emissions, PHEVs also enjoy favourable BIK rates. However, since their potential environmental benefits are linked to them being able to travel on battery power alone, those rates are calculated using a combination of CO2 emissions and electric-only range.
There are five BIK bands for PHEVs. Cars with an electric-only range greater than 130 miles attract a rate of 2% in the 2022/23 tax year (although no such car yet exists). At the other extreme, those with an electric range of fewer than 30 miles (a lot of them) fall into the 14% band.
'Self-charging' hybrids are taxed the same as their petrol and diesel counterparts, based solely on their CO2 emissions.
-*Company car tax bill examples*-
*Vauxhall Corsa 1.2T 100 Ultimate*
The Corsa is a big hit with company car drivers seeking sharp looks, good performance and a low tax bill.
P11D price: £25,120
CO2 emissions: 116g/km
2022/23 BIK rate: 28%
Taxable value (2022/23): £7034
Basic-rate taxpayer (20%): £1407 annual BIK charge
Higher-rate taxpayer (40%): £2813 annual BIK charge
*Volkswagen Golf GTI 2.0 TSI 245*
You would struggle to put this hot hatch on your driveway for less than £3000 per year.
P11D price: £38,735
CO2 emissions: 167g/km
2022/23 BIK rate: 37%
Taxable value (2022/23): £14,199
Basic-rate taxpayer (20%): £2840 annual BIK charge
Higher-rate taxpayer (40%): £5680 annual BIK charge
*BMW 120d M Sport*
This sporty BMW shows that choosing diesel over something like the more expensive Golf GTI can still offer tax advantages.
P11D price: £37,375
CO2 emissions: 133g/km
2022/23 BIK rate: 31%
Taxable value (2022/23): £11,586
Basic-rate taxpayer (20%): £2317 annual BIK charge
Higher-rate taxpayer (40%): £5680 annual BIK charge
*Volkswagen ID 3 Pro*
Even with the 201bhp Pro powertrain, Volkswagen's electric family hatchback shows how running an EV brings your tax bill right down.
P11D price: £41,145
CO2 emissions: 0g/km
2022/23 BIK rate: 2%
Taxable value (2022/23): £823
Basic-rate taxpayer (20%): £165 annual BIK charge
Higher-rate taxpayer (40%): £329 annual BIK charge
*Toyota RAV4 Plug-in Design *
With a relatively long electric-only range of 46 miles, this PHEV attracts an attractively low BIK rate.
P11D price: £44,085
CO2 emissions: 22g/km
2022/23 BIK rate: 8%
Taxable value (2022/23): £2624
Basic-rate taxpayer (20%): £525 annual BIK charge
Higher-rate taxpayer (40%): £1049 annual BIK charge
*Peugeot 308 Hybrid 180 **Allure Premium **e-EAT8*
This PHEV hatchback shows just how low these cars can go, thanks to its electric-only range of 42 miles and low CO2 emissions.
P11D price: £37,655
CO2 emissions: 23g/km
2022/23 BIK rate: 8%
Taxable value (2022/23): £3012
Basic-rate taxpayer (20%): £602 annual BIK charge
Higher-rate taxpayer (40%): £1205 annual BIK charge