Benefit-in-Kind (BiK) is the tax employees pay on any benefit they receive as part of their employment, whether that be private healthcare, support with childcare costs, a loan, or a company car.
For employees with company cars, there are options to provide a car benefit that could help them save on their taxes.
In this guide, we explain how your employees can reduce their car BiK tax.
You can also visit Our Solutions page to discover how you can make even greater cost savings.
What is Benefit-in-Kind tax and how does it work?
Benefit-in-Kind tax for employees
HMRC requires your employees to pay BiK tax on any benefit they have access to for personal use, as well as business use.
For a company car, the amount of tax differs depending on the car your employee drives and their income tax rate. The amount is set by HMRC and calculated using specific rules for BiK tax on company cars.
Benefit-in-Kind tax for employers
As the employer, you’re responsible for informing HMRC of any benefits you provide to your employees on top of their salary.
Before July each year, you’ll need to complete a P11D form for every employee who receives a company car benefit.
Alternatively, you can choose to report taxable benefits via the Pay as You Earn (PAYE) scheme, which will become the mandatory way for reporting benefits from 6 April 2027.
You can learn more about company car tax in our blog here: The Tax Implications of a Company Car. You can also discover how to accurately report employee benefits with a P11D form in our guide here: P11Ds: Everything You Need to Know.
How is BiK calculated on a company car?
A car’s CO2 emissions determine the BiK percentage rate, which can then be used to calculate how much BiK tax would be on any given company car. To complete the calculation, the P11D value of the car is also required, which is the list price, inclusive of VAT, delivery charges and any extras, but exclusive of the first registration fee and the first year of road fund licence. The sum to work out how much you owe is:
P11D value x BiK percentage rate x income tax rate of the employee.
As we transition to electric cars, current rates for Electric Vehicles (EVs) are low, at just 4%, which provides an incentive for businesses to take steps towards an EV fleet. The 4% rate applies to the tax year 2026/27, and the rate will continue to slowly increase each year, reaching 9% by 2030.
Employers are required to pay Class 1A NICs on any car benefits you provide, and similarly, the amount depends on the cash value of the benefit.
Current car Benefit-in-Kind rates
Following the implementation of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), all new cars registered after 6 April 2020 are emission-tested using this method to determine the appropriate percentage rate.
For cars registered between 1 October 1999 and 5 April 2020, CO2 emissions and corresponding percentages are based on the New European Driving Cycle (NEDC) procedure.
Below are the appropriate percentages for company car benefits for petrol-powered and hybrid-powered cars for the tax year 2026/27.
| CO2 emissions (grams per km) | Electric mileage range | NEDC % | WLTP % |
|---|---|---|---|
|
0g |
– |
4 |
4 |
|
1 to 50 |
130 and above |
4 |
4 |
|
1 to 50 |
70 to 129 |
7 |
7 |
|
1 to 50 |
40 to 69 |
10 |
10 |
|
1 to 50 |
30 to 39 |
14 |
14 |
|
1 to 50 |
less than 30 |
16 |
16 |
|
51 to 54 |
– |
17 |
17 |
|
55 to 59 |
– |
18 |
18 |
|
60 to 64 |
– |
19 |
19 |
|
65 to 69 |
– |
20 |
20 |
|
70 to 74 |
– |
21 |
21 |
|
75 to 79 |
– |
21 |
21 |
|
80 to 84 |
– |
22 |
22 |
|
85 to 89 |
– |
23 |
23 |
|
90 to 94 |
– |
24 |
24 |
|
95 to 99 |
– |
25 |
25 |
|
100 to 104 |
– |
26 |
26 |
|
105 to 109 |
– |
27 |
27 |
|
110 to 114 |
– |
28 |
28 |
|
115 to 119 |
– |
29 |
29 |
|
120 to 124 |
– |
30 |
30 |
|
125 to 129 |
– |
31 |
31 |
|
130 to 134 |
– |
32 |
32 |
|
135 to 139 |
– |
33 |
33 |
|
140 to 144 |
– |
34 |
34 |
|
145 to 149 |
– |
35 |
35 |
|
150 to 154 |
– |
36 |
36 |
|
155 to 159 |
– |
37 |
37 |
|
160 to 164 |
– |
37 |
37 |
|
165 to 169 |
– |
37 |
37 |
|
170 and above |
– |
37 |
37 |
Upcoming legislative changes impacting BiK rates for vehicles
The UK Government continues to gradually increase BiK rates for electric vehicles while keeping them lower for petrol/diesel cars.
For example, EVs had a BiK rate of just 1% in 2021/22, 2% in 2022/23, 3% in 2025/26, reaching 4% for 2026/27. The rate will continue to rise, but will remain lower than for petrol and diesel vehicles.
You can read our blog, Everything You Need to Know About the Plug-in Hybrid Company Car Tax Increase, which states that most PHEVs currently attract a 5%, 8% or 12% BiK rate, but if the CO2 emissions for a PHEV model increase beyond 50g/km, as part of the revised testing, then drivers face a rate of at least 15%. This provides a clear indication of the future tax increases for zero-emission company cars post-2030.
With the ban on petrol and diesel vehicles, tax incentives to promote EV adoption won’t be as necessary as it is today. Consequently, we anticipate that company car tax rates for EVs could eventually align with those for hybrid vehicles.
Benefit-in-Kind FAQs
What are the best company cars for BiK?
EVs are cost-efficient company cars for low BiK rates, as the rate for vehicles with 0g/km of CO2 emissions is currently 4%.
How much is Benefit-in-Kind tax?
It depends on the car’s emissions, as well as your employees’ income tax bracket. The CO2 emissions rate tables can be found by clicking here.
How to calculate how much you would pay as an employee:
- Multiply the P11D value of the car by the BiK percentage.
- Multiply the above figure by your tax bracket (20%, 40%, 45%).
Does BiK get added to the employee’s salary?
No, Benefit-in-Kind is a perk you provide to your employees. In this case, it’s a company car.
BiK is a taxable benefit, and employees will pay BiK tax for a company car; however, it’s not included in their salary.
How do my employees remove BiK tax on their company car?
If they don’t need the car for personal use, you might choose to operate a pool car that isn’t available for private use, in which case this tax wouldn’t be applicable.
What is the most tax efficient way to have a company car?
The most tax-efficient way to have a company car is through the low BiK rate for EVs, which is currently 4% for the 2026/27 tax year. This is due to slowly increase each year until it reaches 9% in 2030. You can choose whether your employees simply pay the 4% for their electric vehicle, or whether they pay towards the vehicle’s cost via a gross salary deduction, with tax and National Insurance savings included for both employers and employees.
How is BiK paid?
BiK tax is paid to HMRC via an adjustment to the employee’s tax code.
What happens if employees don’t use a company car for personal use?
If your employee leaves their company car at the business premises overnight, meaning it isn’t used for commuting or other personal travel and is solely for business use, then BiK tax isn’t applicable.
How Can Car Benefit Solutions Help?
We have an alternative way to provide a car benefit through Employee Car Ownership Schemes (ECOS), which transfers ownership of the car to your employees by selling it to them using a Credit Sale Agreement (CSA).
The car is then no longer classed as a company car, so BiK tax isn’t payable by your employees, and you don’t owe Class 1A National Insurance Contributions (NICs) on the benefit.
For more information about ECOS and how it works, get in touch today.