What benefit in kind tax is and how it is calculated
If your employer gives you a car that you can use privately, HMRC treats the availability of that car as a taxable benefit. You are not taxed on the cost to your employer. You are taxed on a notional value, set by a formula based on the car's price and emissions.
The amount is reported to HMRC by your employer, who also pays Class 1A National Insurance on it. You pay income tax, usually collected through your tax code. Employees do not pay National Insurance on the benefit itself.
The same system applies to cars provided through a salary sacrifice scheme, where the taxable benefit follows the same formula as long as the car qualifies under the optional remuneration rules.
Step one is the P11D value. This is the car's list price as published at first registration, plus the value of any extras fitted, including delivery charges. It excludes the first registration fee and vehicle tax. Dealer discounts do not reduce it, and what you contribute to the capital cost can reduce it by up to a limit set by HMRC.
Step two is the appropriate percentage, which comes from the car's CO2 emissions in g/km, and for hybrids its electric range. Step three is the tax: multiply the P11D value by the percentage to get the taxable benefit, then multiply by your income tax rate.
In a formula: P11D value x appropriate percentage x your income tax rate = annual BIK tax. Divide by 12 for a rough monthly equivalent.
How the percentage is set: CO2 and electric range
Zero emission cars sit in their own band with the lowest percentage: 4% in 2026/27. Cars with CO2 between 1 and 50g/km, which are plug-in hybrids, are graded by official electric-only range. In 2026/27 a range of 130 miles or more is charged at 4%, 70 to 129 miles at 7%, 40 to 69 miles at 10%, 30 to 39 miles at 14%, and under 30 miles at 16%.
From 2028/29 that range grading ends and every car in the 1 to 50g/km band is charged a flat percentage: 18% in 2028/29 and 19% in 2029/30. That is a large step for plug-in hybrids that currently sit in the lower range bands.
For cars at 51g/km and above, the percentage steps up with CO2, starting at 17% in 2026/27 and rising to a cap of 37%. The cap is 37% in 2026/27 and 2027/28, 38% in 2028/29 and 39% in 2029/30.
| CO2 (g/km) | 2026/27 | 2027/28 | 2029/30 |
|---|---|---|---|
| 51 to 54 | 17% | 18% | 20% |
| 100 to 104 | 26% | 27% | 29% |
| 120 to 124 | 30% | 31% | 33% |
| 130 to 134 | 32% | 33% | 35% |
| 150 to 154 | 36% | 37% | 39% |
| 155 and above | 37% | 37% | 39% |
Scheduled rates for electric cars and hybrids
HMRC published the appropriate percentages in its schedule up to 2027/28, and its policy paper on taxation of company cars set out 2028/29 and 2029/30. The electric car rate moves from 3% in 2025/26 to 4% in 2026/27, 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
Even at 9%, an electric car is charged far less than a similar petrol car at 30% or more, which is why company car drivers are heavily weighted toward electric models. You can compare any car and year in the company car tax calculator.
| Tax year | Electric (0g/km) | Plug-in hybrid, range 130 miles or more | Plug-in hybrid, under 30 miles |
|---|---|---|---|
| 2026/27 | 4% | 4% | 16% |
| 2027/28 | 5% | 5% | 17% |
| 2028/29 | 7% | 18% flat | 18% flat |
| 2029/30 | 9% | 19% flat | 19% flat |
The diesel supplement and ways to reduce the bill
Diesel cars that do not meet the RDE2 real driving emissions standard carry a supplement of 4 percentage points on top of the normal percentage. The result is still capped at the maximum for the year, so very high emitters are not charged beyond it. Plug-in hybrids are not subject to the supplement.
Most diesel cars registered in recent years meet RDE2, so the supplement matters mainly for older or non-compliant models. Check the car's documentation to see which category it falls into. Using the table above, a non-RDE2 diesel at 120g/km would be charged 34% in 2026/27 rather than 30%.
The tax is formula driven, so the levers are limited, but they are real. The biggest is the choice of car: a lower P11D value or a lower CO2 band both reduce the taxable benefit directly. Paying a capital contribution towards the car also lowers the P11D value, up to a limit set by HMRC.
Choosing which options to fit matters because factory options add to the P11D value and are taxed every year. Accessories fitted after the first year do not always change the benefit in the same way, and HMRC's guidance explains the rules.
- Compare the benefit across two or three candidate cars before choosing, not just the rental.
- Look at the percentage for the final year of your agreement as well as the first.
- Question whether each factory option is worth being taxed on every year.
- Make sure your employer's P11D shows the right CO2 figure and fuel type, as errors do happen.
- Check your tax code each year, as HMRC adjusts it to collect the benefit and mistakes can lead to over or underpaying.
Electric versus plug-in hybrid across the scheduled years
The change from range-based bands to a flat rate in 2028/29 makes a big difference for hybrids. Take a P11D value of £45,000 and a higher rate taxpayer paying 40%. A plug-in hybrid with an electric range of 70 miles or more is charged 7% in 2026/27 and 8% in 2027/28, then 18% in 2028/29 and 19% in 2029/30.
The electric equivalent is charged 4%, 5%, 7% and 9% over the same years. Across the four years the hybrid generates £9,360 of BIK tax at 40%, against £4,500 for the electric car. The gap is small at first and then widens sharply.
If you expect to keep a company car through 2028, check the schedule for the final years of the agreement rather than only the first.
| Tax year | Electric: percentage | Electric: tax at 40% | Hybrid (70 miles or more): percentage | Hybrid: tax at 40% |
|---|---|---|---|---|
| 2026/27 | 4% | £720 | 7% | £1,260 |
| 2027/28 | 5% | £900 | 8% | £1,440 |
| 2028/29 | 7% | £1,260 | 18% | £3,240 |
| 2029/30 | 9% | £1,620 | 19% | £3,420 |
A worked example
Take a car with a P11D value of £35,000 in 2026/27. As an electric car at 4%, the taxable benefit is £1,400. A basic rate taxpayer pays 20% of that, which is £280 a year, and a higher rate taxpayer pays 40%, which is £560.
As a petrol car at 120g/km it is charged 30%, so the benefit is £10,500. The basic rate bill is £2,100 and the higher rate bill is £4,200. A non-RDE2 diesel with the same emissions at 34% has a benefit of £11,900, which gives £4,760 at the higher rate.
On those figures the higher rate difference between the electric and petrol versions is £3,640 a year. These are illustrative sums for the tax only. They exclude any fuel benefit and do not include the cost of running the car.
| Car (P11D £35,000) | Percentage | Taxable benefit | Tax at 20% | Tax at 40% |
|---|---|---|---|---|
| Electric | 4% | £1,400 | £280 | £560 |
| Petrol, 120g/km | 30% | £10,500 | £2,100 | £4,200 |
| Diesel non-RDE2, 120g/km | 34% | £11,900 | £2,380 | £4,760 |
Fuel, business mileage and cash allowances
If your employer pays for fuel that you use privately, that is a separate car fuel benefit, calculated using the same appropriate percentage applied to a fixed figure set by HMRC. Electricity for an electric car is not a taxable fuel benefit. If you pay for your own fuel, you can claim business miles back from your employer.
Employers can reimburse business mileage in a company car tax-free at HMRC's advisory fuel rates. From 1 September 2026, for example, the petrol rate for a 1,401cc to 2,000cc engine is 17p a mile, and electric is 7p at home or 15p on public chargers. If you use your own car for work, HMRC's approved mileage rate is 55p a mile for the first 10,000 business miles in 2026/27. You can test both in the business mileage calculator.
Keeping a log of business and private journeys is worth the effort, as it supports any mileage claim and the correct fuel benefit position.
Some employers offer a cash allowance in place of a company car. The allowance is taxed as ordinary pay, so you pay income tax and National Insurance on it, and then fund your own car. If you use your own car for work, you can claim the approved mileage rate, which is 55p a mile for the first 10,000 business miles in 2026/27 and 25p after that.
A company car with low BIK, such as an electric model at 4%, usually looks better against the allowance than a petrol car at 30% or more. The comparison depends on your mileage, tax band and what the car costs to run. The business mileage calculator is useful for the business-mileage side of that sum.
Rates are set by HMRC and change each April, and Scottish taxpayers use different income tax bands. Check the figures against HMRC's company car tax guidance on gov.uk before relying on them for a decision.
For the wider cost of a car beyond tax, the true cost of leasing tool shows how fuel, maintenance and insurance add up alongside the rental.