Question 1

How is company car tax calculated?

Accepted Answer

Company car tax is based on the car's P11D value (the list price including options, excluding the first year registration fee and road tax) multiplied by the Benefit in Kind (BIK) percentage for that car. The BIK percentage depends on the car's CO₂ emissions  -  lower emissions mean a lower percentage. You then pay Income Tax on that BIK value at your marginal rate. For example, a £30,000 car at 120g/km CO₂ has a 29% BIK rate in 2025/26, giving a taxable benefit of £8,700. A basic-rate taxpayer pays 20% × £8,700 = £1,740/year.

Question 2

Why do diesel cars pay more company car tax?

Accepted Answer

Non-RDE2 diesel cars (those that don't meet the latest real-world driving emissions standard) attract a 4% supplement on top of the standard BIK percentage, capped at the 37% maximum. This reflects the higher NOx and particulate emissions of older diesel engines. If your diesel car is RDE2-compliant (most new diesels from 2021 onwards), you do not pay the supplement  -  it is treated the same as a petrol car. Check your car's V5C or the manufacturer's spec sheet to confirm.

Question 3

Is an electric company car worth it tax-wise?

Accepted Answer

Electric vehicles have a BIK rate of 4% in 2026/27  -  still far below any petrol or diesel equivalent. On a £40,000 EV, a higher-rate taxpayer pays only £640/year in company car tax (4% × £40,000 × 40%). That same car as a 120g/km petrol would cost £4,640/year. However, EV rates are rising  -  5% in 2027/28, and continuing upward  -  so the advantage is narrowing over time.

Question 4

What is Class 1A National Insurance and who pays it?

Accepted Answer

Class 1A NI is paid by your employer  -  not you  -  on the value of benefits in kind including company cars. The rate is 15% of the BIK value from April 2025. So on a car with a £8,700 taxable benefit, your employer pays £1,305/year in Class 1A NI. You do not pay NI on company car benefits yourself (unlike salary, which attracts both employee and employer NI).

Question 5

What is P11D value and how is it different from the purchase price?

Accepted Answer

The P11D value is the manufacturer's list price of the car including options and accessories, but excluding the first year Vehicle Excise Duty (road tax) and any delivery charges. It is not the price you or your employer actually paid  -  discounts negotiated by a fleet buyer do not reduce the P11D value. A dealer discount of £3,000 on a £35,000 car leaves the P11D at £35,000, not £32,000.

Question 6

Is it better to take a company car or a cash allowance?

Accepted Answer

It depends on how much you drive privately and your income tax band. A cash allowance (paid as salary) is taxed as income plus NI, so a £5,000 allowance costs a higher-rate taxpayer around £2,850 after tax. A company car saves you buying and running a car privately, but you pay BIK tax year-round even in years with low private mileage. High-mileage drivers with expensive cars often find the company car wins; low-mileage drivers or those who can source a cheap used car privately often prefer the cash.

Question 7

Which company cars have the lowest tax?

Accepted Answer

Electric vehicles have the lowest BIK rate at 4% in 2026/27. Plug-in hybrids with under 50g/km CO₂ are next, ranging from 5–12% depending on electric range. Below 100g/km petrol sits around 25%. The saving on an EV is dramatic: a basic-rate taxpayer driving a £40,000 EV pays £320/year in company car tax vs roughly £2,060 for an equivalent petrol car at 120g/km. EV BIK rates are rising each year, but remain well below petrol and diesel until at least 2030.

Company Car Tax Calculator UK 2026/27 - Benefit in Kind (BIK)