Discover how to select the best solution for both your company car-entitled drivers and non-entitled drivers with the latest insights from CBS.
Ensure you consider all the options for delivering a car benefit.
Controlling costs is a common target for most businesses, which is why you may be asking whether company cars are still worth it?
Ensuring the company is meeting its objectives and keeping employees happy with an appealing benefits package is a difficult balance, but it’s possible if you choose the right provider for your employee car benefits.
If you select the best solution for your company car entitled drivers, as well as for your non-entitled drivers, both you and your employees will be able to enjoy tax savings.
Company car tax explained
A traditional company car is classed as a taxable benefit, so both you and your employees will pay tax to provide and have access to that car.
This kind of tax is known as Benefit-In-Kind (BiK) as you’re providing an additional benefit to your employees on top of their salary.
There are two ways your employees can pay BiK tax: either a deduction at source (directly from their salary) and PAYE coding notice (HMRC reduces their personal tax free allowance).
Most employers inform HMRC of employee car benefits, however, it’s the driver's responsibility to keep them informed.
How much is company car Benefit-in-Kind tax?
A traditional company car is classed as a taxable benefit, so both you and your employees will pay tax to provide and have access to that car.
This kind of tax is known as Benefit-In-Kind (BiK) as you’re providing an additional benefit to your employees on top of their salary.
There are two ways your employees can pay BiK tax: either a deduction at source (directly from their salary) and PAYE coding notice (HMRC reduces their personal tax free allowance).
Most employers inform HMRC of employee car benefits, however, it’s the driver's responsibility to keep them informed.
For employers
- Determine the appropriate percentage of CO2 g/km according to the emission band and engine type of the vehicle.
- Multiply the percentage by the P11D value of the car, which includes list price, VAT and delivery charges, but not the first year registration fee or annual VED car tax.
- Multiply the total by the employer tax rate of 15% for Class 1A National Insurance Contributions (NICs).
For employees
- Take the P11D value of the car.
- Multiply by appropriate percentage of CO2 g/km, which and can be anything as low as 3% for a pure Electric Vehicle (EV) or more than 37% for a car that creates more pollution.
- Multiply the calculation by the employee marginal rate of tax (MRT) whether than be 20%, 40% or 45%.
Both of these calculations will provide an annual total of tax that would be payable.
You can view the latest rates on the gov.uk website here or or find out everything you need to know about BIK in our complete guide to company car Benefit-in-Kind tax.
How to make savings with Employee Car Ownership Schemes
Employee Car Ownership Schemes (ECOS) give you and your employees the benefits of a company car without the associated tax burden – increasing flexibility, improving controls and generating savings.
With ECOS, the ownership of the vehicle passes to the employee when the car is delivered. This means that BiK tax and Class 1A NICs are not applicable. You deduct a fixed amount from your employee’s net pay each month to contribute towards the running costs of the car.
Additional benefits of ECOS
- Create material savings for your business and your employees - and decide how these are distributed and utilised.
- You’re in control. We’ll work with you to create a car benefit policy and help you maintain it, saving you admin and resource.
- Save your business funds for what makes you money, with CBS providing vehicle funding, authorised and regulated by the Financial Conduct Authority.
Explore the differences between in our blog: Owning Your Company Cars vs an ECOS Fleet.
Take advantage of low Benefit-in-Kind on EVs
BiK rates on pure EVs is currently fixed at 3% increasing by one percentage point every tax year until 2028. You can provide your employees with an easier route to market to drive an EV, by offering a Salary Sacrifice Car arrangement – this solution would work for both company car entitled and non-entitled drivers.
Salary Sacrifice Cars allow your employee to give up some gross pay in return for a brand new EV. With the taxable salary amount reduced, your employees will make savings on income tax and NICs, and your business will save on NICs too. However, BiK tax will be applicable for your entitled drivers, as the vehicle will be classed as a company car.
Discover the most recent company car tax changes in our blog: Tax Changes from April 2025.
Benefits of a company car
As discussed, company cars can bring many financial and tax benefits for both employees and employers. Offering access to a brand-new car to your employees could also help towards attracting and retaining new and existing staff. Whether company cars are worth it for you depends on how often you need to use the vehicles for work purposes and whether you’ll save more money on tax, insurance, fuel, maintenance, servicing, and access to newer vehicles by owning your company cars, using ECOS, having a grey fleet, or having a blended car benefit solution.
At CBS, we can help you decide which benefit package is right for you, depending on whether your fleet includes entitled and non-entitled drivers, where you are on your green agenda, and the benefit level you want to offer.
Choose a provider which can offer all solutions
There isn’t a one size fits all when it comes to providing company cars. We’ll help you determine the best set-up for your business with our full solution management that is included as standard for all our employee car benefit solutions. Here, you’ll be sure to find car benefit solutions that are designed to suit the needs of every business and every driver.
Get in touch today to ensure you’re delivering a car benefit to your employees in the most efficient way for your business.