Understanding Company Car Tax
When organisations provide a car as a benefit to their employees, HMRC class it as a Benefit in Kind (BiK) and as a result, drivers need to pay a company car tax. Our online quotation system will automatically calculate the correct BiK value of the car you’ve chosen based upon the CO2 emissions, additional options, fuel type, P11D value and applicable tax rate according to the salary you’ve entered in the system. It will also take into account whether or not the car has an electric battery as these cars have a significantly lower Benefit in Kind amount compared to fossil fuelled cars.
For cars that are pure electric, you will pay 2% Benefit in Kind from April 2022 which will remain at 2% until April 2025. In 2022, The UK Government confirmed that after April 2025, the company car tax rates on EVs will increase by 1% pa for 3 years.
The rates will be 2% to 2024/25, 3% for 2025/26, 4% for 2026/27 and 5% for 2027/28. The company car tax rates for ultra-low emission cars (non EVs) emitting less than 75g/km will also increase by 1% from April 2025 for 3 years, rising to a maximum of 21%.
How is it calculated?
All taxable benefits have to be valued so HMRC can determine the correct amount of tax to be charged. Some employee benefits will have a specific value but with a car, the tax is based on the ‘use’ of the car so is calculated differently to other benefits.
Cars with less than 75g/km
For Ultra Low Emission Vehicles (ULEVs), which are cars with CO2 emissions less than 75g/km, you will pay tax on the Benefit in Kind value.
This value is determined by the car’s P11D value (list price, including extras and VAT, but without the first year registration fee and vehicle tax) and then multiplied by the BiK rate (see below) which is based on the CO2 emissions and fuel type. This figure is then multiplied by your personal tax rate (e.g. 20%, 40% or 45%) to calculate the annual amount of company car tax to be paid.
Cars with 75g/km of CO2 and above
For cars with CO2 emissions above 75g/km, the taxable benefit is calculated based on the higher value of either the gross salary sacrifice amount or the Benefit in Kind value explained above.
When do I pay the Benefit in Kind tax?
You don’t pay anything until you’ve received delivery of your car.
Then there are 2 main ways of paying company car tax and it’s important you check with your employer as to which will apply as this will affect whether you need to contact HMRC to advise them about your car.
Deduction (tax) at source – this means it’s deducted directly from your monthly salary by your employer and you won’t need to notify HMRC.
Via PAYE coding notice – HMRC will collect your company car tax by issuing you with an amended PAYE Coding Notice, which means that the tax generated by the Benefit in Kind will reduce your personal tax free allowance.
Notifying HMRC
If your employer doesn’t deduct at source then HMRC need to be notified that you have this employee benefit. Most employers will contact HMRC with this information via the P46 (Car) form but you should confirm this with your Employer as it is the driver’s responsibility to ensure HMRC are informed of any changes.
Please see below for tax tables up to April 2025*. After April 2025, the company car tax rates on EVs will increase by 1% pa for 3 years. The rates will be 2% to 2024/25, 3% for 2025/26, 4% for 2026/27 and 5% for 2027/28. The company car tax rates for ultra-low emission cars (non EVs) emitting less than 75g/km will also increase by 1% from April 2025 for 3 years, rising to a maximum of 21%.
The company car tax rates for all other cars will increase by 1% in 2025/26 up to a maximum of 37%, and will then be fixed in 2026/27 & 2027/28.
| CO2 | Electric Range | 2022/25 | 2025/26 | 2026/27 | 2027/28 |
|---|---|---|---|---|---|
| % | % | % | % | ||
| 0 | 2 | 3 | 4 | 5 | |
| 1-50 | >130 | 2 | 3 | 4 | 5 |
| 1-50 | 70 129 | 5 | 6 | 7 | 8 |
| 1-50 | 40-69 | 8 | 9 | 10 | 11 |
| 1-50 | 30-39 | 12 | 13 | 14 | 15 |
| 1-50 | <30 | 14 | 15 | 16 | 17 |
| 51-54 | 15 | 16 | 17 | 18 | |
| 55-59 | 16 | 17 | 18 | 19 | |
| 60-64 | 17 | 18 | 19 | 20 | |
| 65-69 | 18 | 19 | 20 | 21 | |
| 70-74 | 19 | 20 | 21 | 21 | |
| 75-79 | 20 | 21 | 21 | 21 | |
| 80-84 | 21 | 22 | 22 | 22 | |
| 85-89 | 22 | 23 | 23 | 23 | |
| 90-94 | 23 | 24 | 24 | 24 | |
| 95-99 | 24 | 25 | 25 | 25 | |
| 100-104 | 25 | 26 | 26 | 26 | |
| 105-109 | 26 | 27 | 27 | 27 | |
| 110-114 | 27 | 28 | 28 | 28 | |
| 115-119 | 28 | 29 | 29 | 29 | |
| 120-124 | 29 | 30 | 30 | 30 | |
| 125-129 | 30 | 31 | 31 | 31 | |
| 130-134 | 31 | 32 | 32 | 32 | |
| 135-139 | 32 | 33 | 33 | 33 | |
| 140-144 | 33 | 34 | 34 | 34 | |
| 145-149 | 34 | 35 | 35 | 35 | |
| 150-154 | 35 | 36 | 36 | 36 | |
| 155-159 | 36 | 37 | 37 | 37 | |
| 160+ | 37 | 37 | 37 | 37 |
*Add 4% for diesels up to a maximum of 37% (unless RDE2 compliant). Diesel plug-in hybrids are classed as alternative fuel vehicles, so the 4% diesel supplement does not apply to these vehicles irrespective of RDE2 compliance.