Company car tax and BiK explained

How is company car tax actually calculated?

Three numbers, multiplied together. The P11D value is the list price of the car including delivery, VAT and factory-fitted options, less any capital contribution the employee makes. The appropriate percentage is set by the car's CO2 emissions and, for plug-in hybrids, its electric-only range. Multiply those two and you have the cash equivalent: the taxable value of the benefit. The employee pays income tax on that at their marginal rate, and the employer pays Class 1A National Insurance at 15% for 2026/27 on the same figure (gov.uk, National Insurance rates and categories, 2026). So a £40,000 car at 4% has a cash equivalent of £1,600 — a 40% taxpayer pays £640 a year and the employer £240 of Class 1A. The identical car at 32% produces a £12,800 cash equivalent instead. Nothing else in fleet tax has that spread.

What decides the appropriate percentage?

CO2 emissions, first and last — with two refinements that matter. Emissions are rounded down to the nearest 5g/km before the band is read off, so a car at 134g/km is taxed at the 130g/km band. For cars emitting 1 to 50g/km, which in practice means plug-in hybrids, the band is then split by electric-only range: the further it goes on the battery, the lower the percentage, which is why the WLTP electric range on a PHEV brochure is a tax number as much as an engineering one. A diesel car that does not meet the RDE2 standard carries a 4 percentage point supplement, which has applied since 2018/19; RDE2-compliant diesels do not (HMRC Employment Income Manual, EIM24705). The whole table is capped: the appropriate percentage cannot exceed 37% for 2026/27, supplement included.

What are the 2026/27 appropriate percentages?

Where do those figures come from, and what is missing?

The rows above are taken from HMRC's own ready reckoner for the tax year 2026 to 2027 (HMRC Employment Income Manual, EIM24705). The full table runs in 5g/km steps from 55g/km up to the 37% cap, so the bands shown here are a representative sample rather than the whole thing — read the exact band for the exact car before you rely on a number. Add 4 percentage points for a diesel that does not meet RDE2, up to the same 37% ceiling. Two figures to have in front of you when you compare cars: the WLTP CO2 figure for the specific trim and wheel size, because options change it, and the WLTP electric range if it is a plug-in hybrid. A single wheel upgrade can push a car into the next band and cost the driver money for four years.

Why is an electric company car taxed so much less than a diesel?

Because the percentage is the whole game, and the gap is deliberate policy rather than an accident. On a £45,000 car, 4% gives a cash equivalent of £1,800; a 40% taxpayer pays £720 a year. The same £45,000 at 32% gives £14,400, and that driver pays £5,760. The employer's Class 1A follows the same figures at 15%, so the business pays £270 against £2,160. The advantage narrows on a published path but stays wide: the zero-emission percentage rises to 5% in 2027/28, then by two points a year to 7% in 2028/29 and 9% in 2029/30, while the maximum appropriate percentage rises to 38% and then 39% (gov.uk, Income Tax: company car tax rates 2028 to 2030). Plug-in hybrids lose most of their advantage over the same period: cars emitting 1 to 50g/km move to 18% in 2028/29 and 19% in 2029/30. If you are choosing a PHEV mainly for the tax, model the later years before you sign a four-year term.

How is a company van taxed differently from a company car?

This is the part that surprises people, and it works in your favour. A company van does not use the P11D-and-percentage machinery at all. Where a van is available for an employee's unrestricted private use, the charge is a flat figure of £4,170 for 2026/27, plus £798 where fuel is also provided for private travel (gov.uk, van benefit charge and fuel benefit charges for cars and vans for tax year 2026 to 2027, published 3 December 2025). Flat means flat: a £22,000 small van and a £55,000 crew cab produce exactly the same charge. On a £45,000 vehicle, a basic-rate taxpayer pays £834 as a van and would pay £2,880 as a 32% car. Better still, a fully electric van carries a nil van benefit charge, and most working vans attract no charge at all — there is none where private use is insignificant, or where the terms of availability restrict private use to ordinary commuting (HMRC Employment Income Manual, EIM22745 and EIM22800).

Is a double cab pick-up a van or a car for benefit in kind?

A car, in most cases, and this changed recently enough that a lot of businesses have not caught up. From 1 April 2025 for corporation tax and 6 April 2025 for income tax, double cab pick-ups with a payload of one tonne or more are generally treated as cars for capital allowances, benefit in kind and certain deductions, with transitional treatment for vehicles bought, leased or ordered before those dates running to no later than 5 April 2029 (HMRC, 2025). Crew vans deserve the same caution: in HMRC v Coca-Cola European Partners the Court of Appeal held that crew-van style vehicles with a second row of seats were cars rather than goods vehicles, because they were not primarily suited to carrying goods. The VAT definition was not changed by any of this — for VAT a payload of one tonne or more still takes a vehicle outside the definition of a motor car. Two regimes, two tests: see VAT on van leasing and is van leasing tax deductible?

What does providing fuel for private use actually cost?

Usually more than the fuel. Private fuel in a company car is taxed by multiplying a fixed figure — the car fuel benefit multiplier, £29,200 for 2026/27 — by the same appropriate percentage as the car (gov.uk, published 3 December 2025). A car at 32% therefore produces a fuel cash equivalent of £9,344: a 40% taxpayer pays £3,737 a year in tax for their private fuel, and the employer adds £1,401 of Class 1A. Very few drivers do enough private mileage to make that worthwhile, which is why the free-fuel benefit has largely disappeared from UK fleets. Two cleaner routes: reimburse business mileage only, using HMRC's advisory fuel rates, or have the employee repay the full cost of private fuel so no benefit arises. Vans are far simpler — a flat £798, and nil on a fully electric van.

How should benefit in kind change a leasing decision?

It should sit alongside the two costs that fall on the business rather than the driver. On a car, 50% of the VAT on the rental is blocked whatever the emissions, and 15% of the rental is disallowed for corporation tax where the car emits more than 50g/km (HMRC Business Income Manual, BIM47714). On a van, neither restriction applies: the VAT is normally recoverable in full and the whole rental is deductible. So a low-emission company car improves the driver's tax bill and the company's deduction at the same time, while a van improves the company's position outright. Business contract hire from FleetMe is for limited companies and LLPs, on terms of 24 to 60 months; the hire agreement is between your company and us, and any benefit in kind arises between your company and its employee. We quote ex-VAT with the VAT-inclusive figure alongside, and itemise maintenance separately so your accountant can see the split. Browse company cars or vans.

This is general information, not tax advice

Everything above is general information about how UK benefit in kind applies to company vehicles, sourced to HMRC guidance and government publications and dated. It is not tax advice and it cannot account for your circumstances. The outcome depends on the exact vehicle and its WLTP CO2 figure, whether it is a car or a goods vehicle for direct tax, the employee's marginal rate, any capital contribution or private-use payment, and the actual pattern of use. Rates and thresholds change at every fiscal event, and the percentages above are already scheduled to rise. Confirm the position with your accountant before you commit, and ask specifically about the 2028 to 2030 rates if you are signing a four-year term. What we can do is give you a written quote with every element itemised. Ask us for one.